In re Ellington, Bankruptcy No. 88-30335-LMC.

Citation151 BR 90
Decision Date29 January 1993
Docket NumberBankruptcy No. 88-30335-LMC.
PartiesIn re Richard C. ELLINGTON, Debtor.
CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Texas

COPYRIGHT MATERIAL OMITTED

E.P. Bud Kirk, El Paso, TX, for creditor Sunwest Bank.

Andres Villareal and Charles M. Cobbe, Jackson & Walker, Dallas, TX, for FDIC, as successor in interest to NCNB Texas Nat. Bank and NationsBank of Texas, N.A.

Lane C. Reedman, Guevara, Rebe, Bauman, Coldwell & Garay, El Paso, TX, for creditor Valerie Holguin.

Randall L. Rouse, Shafer, Davis, McCollum, Ashley, O'Leary & Stokes, Odessa, TX, for trustee Harvey Caughey.

DECISION AND ORDER DENYING MOTION OF NCNB TEXAS NATIONAL BANK AND NATIONSBANK OF TEXAS, N.A. TO ALLOW OR RECONSIDER CLAIM

LEIF M. CLARK, Bankruptcy Judge.

CAME ON for hearing the Motion of NCNB TEXAS NATIONAL BANK ("NCNB") AND NATIONSBANK OF TEXAS, N.A. ("NATIONSBANK")1 TO ALLOW OR RECONSIDER CLAIM. Upon consideration thereof, it is the ruling of the court that the Motion should be denied.

INTRODUCTION

Federal Rule of Bankruptcy Procedure 3001(e) details the procedures creditors must undertake to transfer claims against a bankruptcy estate. Rule 3001(e) was drafted to satisfy certain needs in the administration of a bankruptcy estate. Adherence to the Rule is not optional, and, as the case at bar painfully demonstrates, failure to follow the Rule can be a costly omission.

BACKGROUND FACTS

Richard C. Ellington (the "Debtor") filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Code (the "Bankruptcy Code") on May 2, 1988 (the "Petition Date"). Upon the filing of the bankruptcy case, Kenneth D. Holt was appointed as the Chapter 7 Trustee. In March 1990, Harvey Caughey was named as substitute Chapter 7 Trustee of the bankruptcy estate (Mr. Holt died). For purposes of this decision, Mr. Holt and Mr. Caughey will be referred to, interchangeably, as the "Trustee."

As of the Petition Date, the Debtor was indebted to First RepublicBank of El Paso ("First Republic") and Sunwest Bank of El Paso, N.A. ("Sunwest") in the combined approximate amount of $2,500,000 by reason of the Debtor's guaranty of the indebtedness of D.E.B.C. Corporation, CVL, Inc., El Paso Terminal Warehouses, Inc. and Brown's Coldstorage and Distribution Center, Inc. ("Brown's Coldstorage").2 The Debtor was a principal of these corporations, and each of the corporations had defaulted on loan obligations to First Republic and Sunwest.

Prior to its own insolvency, First Republic engaged in motion practice before this Court in the present case. On May 6, 1988, First Republic filed a Motion to Lift Stay (the "Lift Stay Motion") with this Court. The Lift Stay Motion was filed by Mr. Don Leslie, counsel of record for First Republic.3 On June 6, 1988, First Republic entered into a Joint Motion for Relief From Stay and Waiver of 30-Day Requirement with Sunwest (the "Joint Lift Stay Motion"). The Joint Lift Stay Motion was filed by Mr. Larry C. Wood, attorney of record for Sunwest, and Mr. Donald Leslie, attorney of record for First Republic.

Shortly thereafter, First Republic was declared insolvent and the Federal Deposit Insurance Corporation (the "FDIC") was appointed as receiver. On July 29, 1988 the FDIC sold the assets of First Republic, including notes, liens, and claims in bankruptcy, to JRB Bank, N.A. in a purchase and assumption transaction. JRB Bank, N.A., which was a bridge bank, then changed its name to NCNB Texas National Bank ("NCNB").

The bar date for the filing of proofs of claim in this case was September 8, 1988 (the "Bar Date"). On August 16, 1988, Mr. Leslie filed a proof of claim in the amount of $1,392,428.63 on behalf of First Republic (hereinafter referred to as the "First Republic Proof of Claim" or the "First Republic Claim"). Note, however, that at this time, NCNB, not First Republic, owned the claim against the Debtor's estate. Note also that, because of the purchase and assumption transaction, NCNB was not a successor bank of First Republic. See 12 U.S.C. § 1821(n)(3)(A)(ii). Despite this transfer of ownership of the claim, the procedures for transferring claims, as set forth in Rule 3001(e), were not followed.

On September 23, 1988, Mr. Leslie, who represented several other creditors in the case, filed a Notice of Appearance and Request for Documents, notifying all parties that he was the attorney of record for NCNB. This document made no reference to First Republic and simply made it appear as if Mr. Leslie was retained by yet another creditor (NCNB).

Thereafter, NCNB replaced Mr. Leslie with Mr. Charles Cobbe, of the law firm of Jackson & Walker, as its counsel. On December 1, 1988, Mr. Cobbe filed an Entry of Appearance and Request for Documents as counsel for NCNB (the "Entry of Appearance"). The Entry of Appearance made no mention that Mr. Cobbe was replacing Mr. Leslie as counsel of record or that Mr. Cobbe was representing NCNB with regard to its asserted ownership interest in the First Republic Claim.

On August 30, 1991, Mr. Cobbe filed an Amended Proof of Claim for NCNB to account for certain proceeds from sales of certain collateral security. The Amended Proof of Claim described NCNB as a successor by merger to First Republic. No objection was filed to the Amended Proof of Claim.

An objection was filed, however, by the Trustee (the "Trustee's Objection") to the First Republic Proof of Claim on September 5, 1991. The Trustee's Objection was urged on grounds that the original claim did not contain sufficient documentation and that it required adjustment to reflect the sale of certain collateral. The Trustee's Objection was served on Mr. Leslie, as counsel of record for First Republic, and not Mr. Cobbe, the then present counsel of record for NCNB.4 Mr. Leslie, who had by this time been relieved of his duties by NCNB for almost three years, did not respond, nor did he forward the Trustee's Objection to Mr. Cobbe. On October 21, 1991, the Court entered an Order sustaining the Trustee's Objection and disallowed the First Republic Proof of Claim. NCNB was, of course, not served with a copy of that Order. After receiving an Interim Distribution Report from the Trustee in 1992 and determining that NCNB was not among the creditors listed to receive a distribution, Mr. Cobbe investigated the situation and learned for the first time that the First Republic Claim had been disallowed. On July 22, 1992, NCNB filed the instant Motion to Allow or Reconsider Claim. Several objections to NCNB's motion were filed by Sunwest and by Valerie Holguin, another creditor.

DISCUSSION

NCNB presents several arguments for why this court should allow the NCNB Claim or reconsider the disallowance of the First Republic Claim. NCNB first argues that it amended the First Republic Claim by its Amended Proof of Claim, filed on August 30, 1991, thereby curing all defects in the original. NCNB next argues that its claim should not have been disallowed because NCNB was never served with a copy of the Trustee's Objection to the First Republic Claim and Order Disallowing Claim. NCNB also contends that, under the doctrine of judicial estoppel, Sunwest is estopped from asserting that NCNB has no claim since NCNB has been an active participant throughout the pendency of the case. Finally, NCNB concludes that the motions NCNB has filed with the Court, along with the knowledge of the objecting parties of NCNB's claim, constitute informal proofs of claim.

1. NCNB Could not Amend the First Republic Proof of Claim

As previously discussed, Mr. Leslie filed a proof of claim on behalf of First Republic Bank on August 16, 1988. NCNB subsequently filed an Amended Proof of Claim on August 30, 1991, ostensibly to amend the First Republic Proof of Claim. This amendment, NCNB argues, cures any defect in the First Republic Proof of Claim, including the incorrect name of the owner of the claim.

Rule 3002 sets forth the required procedures for filing a proof of claim in a bankruptcy case. Courts construing that rule have traditionally allowed the filing of amended proofs of claim after the time to file a proof of claim has elapsed. See, e.g., In re Sullivan, 36 B.R. 771, 773 (Bankr. E.D.N.Y.1984). Leave to amend a proof of claim is within the court's discretion, and courts generally grant the requested leave freely. See In re Norris Grain Co., 131 B.R. 747, 749-50 (M.D.Fla.1990).

A timely filed proof of claim may be freely amended "if it (1) corrects a defect of form in the original claim; (2) describes the original claim with greater particularity; or (3) pleads a new theory of recovery on the facts set forth in the original claim." See In re McLean Industries, Inc. 121 B.R. 704, 708 (Bankr.S.D.N.Y. 1990); see also In re International Horizons, Inc., 751 F.2d 1213, 1216 (11th Cir. 1985). Furthermore, if the amendment does not seek recovery on any new or different claim, it will be allowed absent any overriding equitable concern. McLean, 121 B.R. at 708.5

In addition to the timely filing of a proof of claim, it is also essential to the allowance of an amendment that the original proof of claim be properly filed by the party seeking amendment. The proper filing of an original proof of claim is fatally absent in NCNB's argument. NCNB sought to amend the First Republic Proof of Claim, timely filed on August 16, 1988.6 Here, when First Republic filed its original proof of claim, it did not own any claims against the Debtor's bankruptcy estate. All First Republic assets had been sold to NCNB, formerly JRB, by the FDIC on July 29, 1988, more than two weeks before Mr. Leslie filed the First Republic Proof of Claim. On that date, First Republic no longer even existed.

Section 501(a) of the Bankruptcy Code provides that "a creditor or an indenture trustee may file a proof of claim." 11 U.S.C. § 501(a). This section is an exhaustive list of those parties which may file a proof of claim.7See In re Allegheny...

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