In re Fink

• Decision Date: 15 March 2007
• Docket Number: No. 03-15247.,03-15247.
• Parties: In the Matter of David Burr FINK, Debtor.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana

366 B.R. 870

In the Matter of David Burr FINK, Debtor.

No. 03-15247.

United States Bankruptcy Court, N.D. Indiana, Fort Wayne Division.

March 15, 2007.

COPYRIGHT MATERIAL OMITTED

Joshua P. Hollingsworth, Lock Reynolds LLP, Indianapolis, IN, for Plaintiff.

Mark A. Warsco, Fort Wayne, IN, for Defendant.

DECISION ON OBJECTION TO CLAIM

ROBERT E. GRANT, Bankruptcy Judge.

This matter is before the court in connection with the trustee's objection to a proof of claim filed by Janie Fink. The trustee argues that Ms. Fink's claim was filed after the deadline for doing so had passed and so should be paid only after all timely claims have been paid in full. See, 11 U.S.C. §§ 502(b)(9), 726(a)(3). Ms. Fink argues that her claim, although admittedly belated, should be treated as timely because her formal proof of claim constitutes an amendment to an "informal proof of claim" which was filed before the bar date; thus, it relates back to the earlier date. The relevant facts have been stipulated and both parties have filed motions for summary judgment.

The deadline for filing claims in this Chapter 7 case expired on August 11, 2004. Both Janie Fink, who is the debtor's ex-wife, and her counsel received appropriate notice of that deadline. On August 12, 2004 — one day after the deadline passed — Ms. Fink's counsel filed a claim on her behalf for more than $3,200,000. Because it was filed after the bar date had passed, the trustee has objected to Ms. Fink's claim and, pursuant to § 726(a)(3), has asked that any distribution it might receive be subordinated to the full payment of all timely filed claims. In response, the creditor's current counsel argues that an adversary proceeding, as well as a motion for relief from stay and abandonment, which had been filed on Ms. Fink's behalf before the expiration of the claims bar date, constitute an informal proof of claim and that her late claim should be viewed as an amendment of those earlier filings. As such, it should relate back to the date they were first submitted and becomes timely.

The court has no equitable power to allow late claims except under the circumstances specified by the Bankruptcy Code and the applicable rules of procedure. Matter of Greenig, 152 F.3d 631, 635 (7th Cir.1998). A creditor that has notice or knowledge of the case in time to file a timely proof of claim and fails to do so will have its claim denied, 11 U.S.C. § 502(b)(9), or, in cases under Chapter 7, subordinated to the full payment of all timely claims.¹ 11 U.S.C. § 726(a)(3). Because of this creditors that failed to file a timely proof of claim often contend that their claim is not really late and should be treated as though it were timely. They argue that some earlier submission constitutes an "informal proof of claim" which was subsequently "amended" by the proof of claim actually filed, with the result that the "amended claim" relates back to the date of the earlier filing and is, therefore, timely. See e.g., In re M.J. Waterman & Associates, Inc. 227 F.3d 604, 608 (6th Cir.2000); In re Wigoda, 234 B.R. 413, 415 (Bankr.N.D.Ill.1999); In re Scott, 227 B.R. 832 (Bankr.S.D.Ind.1998).

The concept of an "informal proof of claim is an equitable doctrine developed by the courts to ameliorate the strict enforcement of the claims bar date." Wigoda, 234 B.R. at 415. Its purpose

is to alleviate problems with form over substance; that is, equitably preventing the potentially devastating effect of the failure of a creditor to formally comply with the requirements of the Code in the filing of a Proof of Claim, when, in fact, pleadings filed by the party asserting the claim during the claims filing period in a bankruptcy case puts [sic] all parties on sufficient notice that a claim is asserted by a particular creditor. Waterman & Associates, 227 F.3d at 609 (quoting In re WPRV-TV, Inc., 102 B.R. 234, 238 (Bankr.E.D.Okla.1989)).

Whether or not an otherwise untimely claim will be allowed to relate back to the date of an earlier informal claim is a matter committed to the court's discretion. Waterman & Associates, 227 F.3d at 607; Matter of Stavriotis, 977 F.2d 1202, 1204 (7th Cir.1992).

Given the equitable, origins for the concept of an informal claim, a strict application of the Seventh Circuit's holding in Greenig — that the court does not have the equitable power to allow a late-filed claim outside the exceptions contained in Rule 3002(c), Greenig, 152 F.3d at 635 — would seem to foreclose further consideration of the issue. Nothing in Rule 3002(c) even alludes to the concept of an informal claim, or to an amendment to a claim relating back to an earlier date. Instead, the court's ability to enlarge the time for filing a proof of claim is permitted "only to the extent and under the conditions" stated in that rule, Fed. R. Bankr.P. Rule 9006(b)(3), none of which apply here. While the concept of an amendment to a claim relating back to an earlier date is congruent with Rule 15(c) of the Federal Rules of Civil Procedure — Bankruptcy Rule 7015 — and, at least to some extent, seems to arise out of that rule, see, Matter of Plunkett, 82 F.3d 738 (7th Cir.1996); Stavriotis, 977 F.2d 1202; Matter of Unroe, 937 F.2d 346 (7th Cir.1991), Rule 15 does not apply to contested matters such as claims proceedings. Fed. R. Bankr.P. Rule 9014. Furthermore, using Rule 15 to authorize belated claims would seem to run afoul of the restrictions imposed by Bankruptcy Rules 9006(b)(3) and 3002(c). It is a bit odd to think that the court could use its discretion to apply Rule 15 to contested matters involving late claims and then, through the discretionary application of that rule, do something that Rules 9006(b)(3) and 3002(c) prohibit. One might just as well drop the pretense and simply say the court has the discretion to allow late claims, so long as a creditor can come forward with a satisfactory reason for doing so.

Despite the foregoing observations, the Seventh Circuit has previously recognized the concept of an informal claim, Wilkens v. Simon Brothers, Inc., 731 F.2d 462, 464-65 (7th Cir.1984); In re Pacific Lumber & Fuel Co., 194 F.2d 995 (7th Cir.1952), and it has validated the bankruptcy court's use of that equitable doctrine to salvage otherwise untimely claims. Unroe, 937 F.2d at 349-51. Nonetheless, it has never established any guidelines that would assist the court in determining what constitutes an amendable informal proof of claim. In re Harper, 138 B.R. 229, 243 (Bankr.N.D.Ind.1991). Instead, it has either accepted the parties' agreement that something constitutes such a claim and decided the issue on other grounds, see, Plunkett, 82 F.3d at 740; Matter of Evanston Motor Co., Inc., 735 F.2d 1029, 1031 (7th Cir.1984), or remanded the case to the bankruptcy court to determine whether the doctrine might apply. See, Wilkens v. Simon Brothers, Inc., 731 F.2d 462, 464-65 (7th Cir.1984). It has also issued decisions holding that something does not constitute an informal proof of claim, without elaborating on what such a claim might be. In re Outboard Marine Corp., 386 F.3d 824, 828-29 (7th Cir.2004) (proof of claim faxed to trustee's counsel was not an informal claim); Matter of DeVries Grain & Fertilizer, Inc. 12 F.3d 101, 103 (7th Cir.1993) (request for administrative expense in a Chapter 11 case did not constitute an informal claim). Then there are decisions, such as Greenig, that would seem to be highly critical of the concept. See also, Plunkett, 82 F.3d 738; Stavriotis, 977 F.2d at 1206-07. Furthermore, in discussing late claims generally and the amendment of timely formal proofs of claim, the circuit has clearly indicated that post-bar date attempts to assert a claim against the estate are frowned upon "and should generally be barred." Unroe, 937 F.2d at 351. See also, Plunkett, 82 F.3d at 741. The cumulative effect of these decisions leads the court to conclude that it should approach the concept of an informal proof of claim with a degree of caution.

Reading the reported decisions concerning informal claims can quickly lead one to the conclusion that it is a doctrine in need of some discipline or at least clarification. The 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.N.D.Fla.1986)(complaint objecting to discharge and objection to plan constitute informal proof of claim); In re Holzer, 5 Bankr.Ct. Dec. (CRR) 19, 20 C.B.C. 227 (Bankr.S.D.N.Y.1979)(dischargeability complaint may not be used as an informal claim). Given that the issue is a matter committed to the court's discretion, these disparities may not be too surprising: the possibility that two judges looking at similar facts might come to different conclusions is inherent in the nature of discretionary choices. U.S. v. Williams, 81 F.3d 1434, 1437 (7th Cir.1996).

More troubling than the differing conclusions judges might reach in individual cases, is the fact that the reported decisions are not consistent as to the legal standard used to determine whether something constitutes an informal proof of claim which can subsequently be amended. Some courts have identified five considerations, see, In re American Classic Voyages Co., 405 F.3d 127, 130-32 (3rd Cir.2005); In re Reliance Equities, Inc., 966 F.2d 1338, 1345 (10th Cir.1992), others have less. In re Hansel, 160 B.R. 66, 71 (...