876 F.2d 866 (11th Cir. 1989), 88-3303, In re Charter Co.

Docket Nº:88-3303.
Citation:876 F.2d 866
Party Name:In re The CHARTER COMPANY, et al., Debtors. The CERTIFIED CLASS IN the CHARTER SECURITIES LITIGATION and CERTAIN Individual Members Thereof, Plaintiffs-Appellants, v. The CHARTER COMPANY, Defendant-Appellee.
Case Date:June 28, 1989
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit

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876 F.2d 866 (11th Cir. 1989)

In re The CHARTER COMPANY, et al., Debtors.


CERTAIN Individual Members Thereof, Plaintiffs-Appellants,


The CHARTER COMPANY, Defendant-Appellee.

No. 88-3303.

United States Court of Appeals, Eleventh Circuit

June 28, 1989

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Nicholas E. Chimicles, Kenneth A. Jacobsen, Denise Davis Schwartzman, Haverford, Pa., for plaintiffs-appellants.

Daniel L. Goelzer, Richard A. Kirby, Martha H. McNeely, U.S. Securities & Exchange, Washington, D.C., Patricia I. Avery, New York City, Michael Grant Kohn, Gene Mesh & Associates, Cincinnati, Ohio, for U.S. S.E.C.

Stephen D. Busey, Smith & Hulsey, Jacksonville, Fla., for defendant-appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before HILL and ANDERSON, Circuit Judges, and ESCHBACH [*], Senior Circuit Judge.

ANDERSON, Circuit Judge:

This case poses the question of whether proofs of claim in bankruptcy may be filed on behalf of a class of claimants, rather than being required individually of each claimant. We hold that class proofs of claim are valid.


On April 5, 1984, the appellants in this case initiated suit against the appellee, the Charter Company ("Charter"), and against its officers and directors. In re Charter Securities Litigation, No. 84-448-CIV-J-12 (M.D.Fla.). The action sought damages based on violations of federal securities law, on behalf of the named plaintiffs and a class consisting of purchasers of Charter's stock. The details of the allegations in the securities litigation are not material to this appeal, but the gravamen of the complaint was that Charter misrepresented its financial condition during the relevant period to purchasers of its stock.

On April 20, 1984, Charter and a large number of its subsidiaries or affiliates filed petitions for reorganization in bankruptcy under chapter 11 of the Bankruptcy Code, 11 U.S.C. Secs. 1101 et seq. In re The Charter Company, Nos. 84-289-BK-J-GP through 84-332-BK-J-GP (Bankr.M.D.Fla.). The securities litigation was stayed with respect to Charter, pursuant to the automatic stay provision of the Code, 11 U.S.C. Sec. 362(a), but proceeded against the other named defendants.

Meanwhile, the reorganization proceedings began. The bankruptcy court entered an order requiring that potential claimants file a proof of claim by a November 19, 1984, bar date. On September 14, 1984, prior to the bar date, the named representatives in the securities litigation filed a proof of claim in the bankruptcy case. The proof of claim, entitled Proof of Claim on Behalf of Class of Claimants, purported to establish claims on behalf of the named plaintiffs and all those who purchased Charter securities during the specified period. The consolidated and amended class action complaint in the securities litigation

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was appended to the proof of claim. Subsequently, in August 1986, the district court certified the class in the securities litigation.

After almost two years of reorganization negotiations, on October 7, 1986, Charter objected to the proof of claim. In response, the claimants filed a Bankruptcy Rule 9014 motion for application of Bankruptcy Rule 7023--which applies Federal Rule of Civil Procedure 23 ("Rule 23") to bankruptcy proceedings--and for class certification of the claim.

The bankruptcy court disallowed the "class" proof of claim, on two grounds. First, the court ruled that, in light of this court's decision in In the Matter of GAC Corp., 681 F.2d 1295 (11th Cir.1982), proofs of claim on behalf of a class of claimants are not allowable in bankruptcy proceedings. Second, it held that, even were such proofs of claim proper, the claimants did not comply with the requirements for bankruptcy class certification in a timely manner. The district court affirmed the bankruptcy court on both grounds, in an order dated February 24, 1988. This appeal followed.

In this appeal, we address two issues, in the following order. First, we must decide whether proofs of claim on behalf of a class of claimants are allowable in bankruptcy. Second, if such proofs of claim are allowable, we will address whether the particular claim filed by the appellants complied with the procedural requirements of the Bankruptcy Rules.


Under chapter 11 of the Bankruptcy Code, certain claimants against an estate in bankruptcy must file proofs of claim in order to participate in a reorganization and obtain any monetary satisfaction. Bankruptcy Rule 3003(c). In order to safeguard the finality of the proceedings, Bankruptcy Rule 3003(c)(3) provides that "[t]he court shall fix ... the time within which proofs of claim or interest may be filed." See Hoos & Co. v. Dynamic Corp. of America, 570 F.2d 433, 439 (2d Cir.1978); In the Matter of Evanston Motor Co., Inc., 26 B.R. 998, 1005 (N.D.Ill.1983), aff'd, 735 F.2d 1029 (7th Cir.1984). After the passage of this deadline, commonly referred to as the bar date, the claimant cannot participate in the reorganization unless he establishes sufficient grounds for the failure to file a proof of claim. See generally In re South Atlantic Financial Corp., 767 F.2d 814, 817 (11th Cir.1985), cert. denied, 475 U.S. 1015, 106 S.Ct. 1197, 89 L.Ed.2d 311 (1986).

Normally, with one enumerated exception, proofs of claim are filed individually, usually by a creditor. See 11 U.S.C. Sec. 501. 1 Of course, section 501 does not operate in isolation. It is supplemented by a number of other provisions related to who may file and the procedures by which the reorganization will be conducted. The parties do not dispute that under these provisions claims individually filed may be, under the appropriate circumstances, certified and treated as a class. See Bankruptcy Rule 7023; see, e.g., In re REA Express, Inc., 10 B.R. 812 (Bankr.S.D.N.Y.1981). In contrast--and in the absence of specific statutory authorization--the claimants in this case are attempting to file on behalf of a class of claimants other than themselves. 2

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Whether the Bankruptcy Code permits class proofs of claim is a question of first impression in this circuit, and only two of our sister circuits have dealt with the issue. 3 In In the Matter of American Reserve Corp., 840 F.2d 487, 488 (7th Cir.1988), the Seventh Circuit approved the filing of class proofs of claim. Earlier, the Tenth Circuit had reached the opposite result. In re Standard Metals, 817 F.2d 625, 630 (10th Cir.1987), vacated and reversed on other grounds sub nom. Sheftelman v. Standard Metals Corp., 839 F.2d 1383 (1987), cert. dismissed --- U.S. ----, 109 S.Ct. 201, 102 L.Ed.2d 171 (1988). While the precedential value of the holding in Standard Metals is uncertain, 4 in any case we find the reasoning of American Reserve more persuasive.

The Bankruptcy Code contains no explicit provision authorizing the filing of class proofs of claim. GAC, 681 F.2d at 1299.

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The statutory list of who may file, and the definitions of the terms composing the list, do not include a class representative. 5 Charter would urge that our inquiry stop there. However, the question we face is how to interpret that silence. Therefore, we turn to an examination of the legislative history and structure of the Code.

The legislative history of the Bankruptcy Code supports the conclusion that class proofs of claim are valid. While the legislative history is silent on the specific issue, it evinces a congressional intent to open bankruptcy proceedings to the widest possible range of "players." The 1978 revision of the statute expanded the definition of a claim, using the following broad language:

[A] right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.

11 U.S.C. Sec. 101(4). The congressional goal was clear: "The effect of the definition is a significant departure from present law ... By this broadest possible definition, and by the use of the term throughout the title 11, especially in subchapter I of Chapter 5 [the claim filing and treatment provisions of the statute], the bill contemplates that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy court. It permits the broadest possible relief in the bankruptcy court." H.Rep. No. 595, 95th Cong., 1st Sess. 309 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6266 (reprinted in notes following 11 U.S.C.A. Sec. 101 (1979)). A restrictive reading of section 501, the filing provision, would frustrate this goal. The consequence of prohibiting class proofs of claim would be to read out of the broad definition of claim the debtor's obligations to the putative class. 6 To this extent, then, a reading of section 501 that permitted class proofs of claim would be consistent with the goals of the bankruptcy statutory scheme.

In construing the filing provision, it is also useful to look to the structure and policies of the Code. It is persuasive that Congress has incorporated Rule 23 into the Bankruptcy Code. 7 Given that Congress indisputably intended to make procedures related to prosecuting a class action available to bankruptcy claimants, there is a strong indication that procedures related to initiating a class action should be available. Other Code sections incorporating the Federal Rules of Civil Procedure have been construed to further the policies and

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procedures of the incorporated rule. See, e.g., Fuel Oil Supply and Terminaling v. Gulf Oil Corp., 762 F.2d 1283 (5th Cir.1985) (construing 11 U.S.C. Sec. 1109 with the Federal Rules so that...

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