In re Waterman v. Waterman

• Decision Date: 22 June 2000
• Docket Number: No. 99-1446,99-1446
• Citation: 227 F.3d 604
• Parties: (6th Cir. 2000) In re: M.J. Waterman & Associates, Inc., Debtor. Duane H. Barlow, Appellee, v. M.J. Waterman & Associates, Inc., Appellant. Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 604

227 F.3d 604 (6th Cir. 2000)

In re: M.J. Waterman & Associates, Inc., Debtor. Duane H. Barlow, Appellee, v. M.J. Waterman & Associates, Inc., Appellant.

No. 99-1446

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: June 22, 2000

Decided and Filed: September 15, 2000

Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 98-74128--Avern Cohn, District Judge.

Brian H. Rolfe, Joseph Falcone, FALCONE & ROLFE, P.C., Southfield, Michigan, for Appellee.

Thomas B. Radom, BUTZEL LONG, Birmingham, Michigan, Michael F. Smith, BUTZEL LONG, Detroit, Michigan, for Appellant.

Before: KEITH, MERRITT, and COLE, Circuit Judges.

KEITH, J., delivered the opinion of the court, in which COLE, J., joined. MERRITT, J. (pp. 612-13), delivered a separate dissenting opinion.

OPINION

DAMON J. KEITH, Circuit Judge.

Debtor-Appellant, M.J. Waterman & Associates, Inc. ("Waterman"), appeals from a judgment of the United States District Court for the Eastern District of Michigan which reversed a decision of the United States Bankruptcy Court for the Eastern District of Michigan in which the bankruptcy court refused to treat the pre-bar date filings of Creditor-Appellee Duane H. Barlow ("Barlow") as an informal proof of claim and his objection to Waterman's Bankruptcy Reorganization Plan as an informal ballot. For the following reasons, we REVERSE the district court's decision and AFFIRM the judgment of the bankruptcy court.

I.

On August 13, 1997, after a jury trial, Duane H. Barlow ("Barlow") obtained a judgment against Waterman from a Michigan state court in the amount of $136,345.31, plus $25,000 in attorney's fees plus interest. On October 16, 1997, Waterman filed for reorganization under Chapter 11 of the Bankruptcy Code, listing eleven priority and unsecured creditors with claims totaling in excess of $686,000. Barlow was listed as a creditor holding a disputed unsecured non-priority claim¹ in the principal amount of $161,891.91. On October 22, 1996, the Clerk of the bankruptcy court issued a Notice of Commencement of Waterman's Chapter 11 case. This Notice set a deadline (hereafter "bar date") of February 16, 1998, for the filing of proofs of claim against Waterman. All of Waterman's creditors received this Notice, including Barlow.

During the next several months, Barlow filed several motions with the bankruptcy court, ostensibly in an effort to protect his interest in Waterman's assets². Mistakenly believing that the filing of these motions obviated the need to file a proof of claim, Barlow did not file a proof of claim by the bar date, calling his right of recovery against Waterman into question.

On February 13, 1998, Waterman filed its combined Plan of Reorganization and Disclosure Statement ("Plan"), which it amended per the bankruptcy court's instructions and re-submitted on March 25, 1998. According to Waterman's Plan, it would pay its unsecured non-priority creditors 100 percent of the value of their claims over a fixed term. This term would be two and a half years if Barlow's claim were disallowed and five years if his claim were allowed. On March 31, 1998, the bankruptcy court issued an order granting preliminary approval of the amended Plan, establishing May 8, 1998 as the deadline by which creditors were to file ballots and objections to the Plan, and ordering Waterman to serve all parties in interest with copies of the Plan and a ballot for accepting or rejecting the Plan. The bankruptcy court set May 22, 1998 as the date for a hearing on confirmation of the Plan.

On April 2, 1998, the bankruptcy court held an evidentiary hearing on the motions Barlow filed after receiving Waterman's Chapter 11 Notice. At the hearing, several of the other creditors objected to the proceedings because Barlow had failed to serve them with copies of the motion to dismiss, in contravention of the applicable Bankruptcy Rules. Barlow's attorneys acknowledged their failure to comply with the Bankruptcy Rules and the bankruptcy court adjourned the evidentiary hearing until May 22, 1998, the same day as the hearing on the confirmation of the Plan. Also on April 2, 1998, Barlow filed an Amended Proof of Claim in the amount of $161,345.31. He further filed: (1) objections to the claims of two creditors; (2) objections to Waterman's proposed Plan; (3) a Notice of Withdrawal of the Motion to Dismiss and in its place a Motion to Convert the Chapter 11 Case to a Chapter 7 Case; and (4) a Motion to Allow the Amended Claim.

By the May 8, 1998 deadline for filing ballots approving or rejecting Waterman's Plan, seven creditors had filed ballots voting to accept the Plan with none of the creditors casting a vote to reject the Plan. Barlow failed to file a ballot at all. On August 10, he filed a request that his previously filed objection to the Plan be considered as an informal ballot rejecting the Plan.

On September 8, 1998, the bankruptcy court held a hearing in which it heard argument addressing Barlow's motions and confirmation of the Plan. Among the issues before the court were: (1) whether Barlow's pre-bar date motions should constitute an "informal proof of claim" which could be amended so as to allow his claim against Waterman; and (2) whether Barlow's objection to the Plan should be treated as an informal ballot. After hearing argument, the bankruptcy court found Barlow's failure to file a formal proof of claim inexcusable and denied his Motion to Allow Amendment of the Informal Proof of Claim as a Formal Proof of Claim. The bankruptcy court further declined to consider Barlow's objections to Waterman's Plan as an "informal ballot" and denied all of his motions. The bankruptcy court's findings meant that Barlow's claim was disallowed and he was no longer considered a party in interest with a right of recovery against Waterman. At the conclusion of the hearing, the Bankruptcy Court approved Waterman's Plan of Reorganization pursuant to § 1129(a) of the Bankruptcy Code. Barlow filed a Notice of Appeal with the United States District Court for the Eastern District of Michigan, and Waterman filed a Motion to Dismiss the Appeal.

II.

The district court received briefs and heard oral argument on both Barlow's appeal and Waterman's Motion to Dismiss the Appeal. On March 19, 1999, the district court issued a Memorandum and Order vacating and remanding the bankruptcy court's decisions, finding that the bankruptcy court had abused its discretion in failing to treat Barlow's pre-bar date filings as an informal proof of claim and in failing to treat his objections to Waterman's Plan as an informal ballot. Waterman filed a timely Notice of Appeal with this Court.

III.

This Court has jurisdiction pursuant to 28 U.S.C. §§ 158 and 1291. We note that our review process is slightly different from our normal standard of review when reviewing appeals which originated in the bankruptcy courts. First, we directly review the bankruptcy court's decision rather than the district court's review of the bankruptcy court's decision. See In re Trident Assocs. Ltd. Partnership, 52 F.3d 127, 130 (6th Cir. 1994). As explained in In re Omegas Group, Inc., this Court accords discretion in reviewing only the original bankruptcy court findings, not those included in the decision rendered by the district court, since "[t]his court is 'in as good a position to review the bankruptcy court's decision as is the district court.'" 16 F.3d 1443, 1447 (6th Cir.1994) (quoting In re Sambo's Restaurants, Inc., 754 F.2d 811, 814 (9th Cir.1985)).

As always, we review the bankruptcy court's conclusions of law de novo, while we review its factual findings for clear error. See In re Rembert, 141 F.3d 277, 280 (6th Cir.1998). Whether an informal proof of claim should be allowed is an equitable determination by the bankruptcy court. See In re Houbigant, Inc. 190 B.R. 185, 187 (Bankr. S.D.N.Y.1996). Equitable determinations are within the sound discretion of the bankruptcy judge and will not be disturbed absent abuse of discretion. See In re Zick, 931 F.2d 1124, 1126 (6th Cir. 1991). An abuse of discretion is defined as a "definite and firm conviction that the [court below] committed a clear error of judgment." Soberay Mach. & Equip. Co. v. MRF Ltd., Inc., 181 F.3d 759, 770 (6th Cir. 1999); Bowling v. Pfizer, Inc., 102 F.3d 777, 780 (6th Cir.1996). The question is not how the reviewing court would have ruled, but rather whether a reasonable person could agree with the bankruptcy court's decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion. See Washington v. Sherwin Real Estate, Inc., 694 F.2d 1081, 1087 (7th Cir. Cir.1982); see also In re Carter, 100 B.R. 123, 126 (Bankr. D. Me. 1989).

IV.

Under Rule 3003 of the Federal Rules of Bankruptcy Procedure, a creditor whose claim is scheduled as disputed must file a proof of claim. A proof of claim is a written statement which sets forth a creditor's claim against a debtor and must "conform substantially to the appropriate official form." Fed. R. Bankr. P. 3001(a). A proper proof of claim must include:

1. Name and address of Creditor;

2.Basis for the claim;

3.Date that debt was incurred;

4.Classification of the claim;

5.Amount of claim; and

6.Copies of any documents supporting the claim.

Official Form 10. The failure to file a proof of claim is grounds for disallowance under the Bankruptcy Code. 11 U.S.C. § 502(b)(9). The bankruptcy court may extend the time for filing a proof of claim "for good cause shown" or "excusable neglect." Fed. R. Bankr. P. §§ 3303(c)(3) and 9006(b). However, Barlow's claim is not based on either of these claims; rather, he seeks to invoke the common law doctrine of "informal proof of claims."³

The notion of informal proof of claims has been in existence for nearly a century⁴. See Hutchinson v. Otis, 190 U.S. 552, 555 (1903); see also J.B. Orcutt Co. v. Green, 204 U.S. 96, 102 (1907). It permits a...