In re Grynberg, Bankruptcy No. 81 B 00821 C
| Decision Date | 16 April 1990 |
| Docket Number | 81 B 00825 C.,Bankruptcy No. 81 B 00821 C |
| Citation | 113 BR 709 |
| Parties | In re Jack J. GRYNBERG, Debtor. In re Celeste C. GRYNBERG, Debtor. DANZIG CLAIMANTS, Applicants, v. Jack J. GRYNBERG and Celeste C. Grynberg, Respondents. |
| Court | U.S. Bankruptcy Court — District of Colorado |
James C. Ruh, Denver, Colo., for applicants.
Neil E. Ayervais, Denver, Colo., for debtor-respondent Jack J. Grynberg.
William D. Scheid, Denver, Colo., for debtor-respondent Celeste C. Grynberg.
ORDER ON MOTION FOR PAYMENT OF COSTS
This matter is before the Court on applicants' motion for payment of costs from the deposit established by this Court's Order and an objection thereto filed by the debtors.
A judgment was entered against the Grynbergs and in favor of a class which included the applicants by the Superior Court in and for the County of Alameda and State of California on or about February 4, 1981 (the judgment).
The debtors filed individual bankruptcy petitions under Chapter 11 of the Bankruptcy Code on February 21, 1981.
A cost memorandum claiming $2,039.80 was filed in the California trial court on March 18, 1981 by counsel for the applicants (first cost memorandum). All costs claimed therein related to costs expended pre-petition to execute upon the judgment.
On May 11, 1981, the debtors were given authority to employ California counsel and to prosecute an appeal from the judgment.1 While such appeal was pending, the debtors requested and received permission to substitute collateral held by the applicants. The Court approved the release of liens previously asserted by the applicants upon properties of the debtors located in the states of California, Colorado, Montana, Utah and Wyoming in exchange for the establishment of a deposit in the initial amount of $7,150,000 (the deposit).
A cost memorandum claiming $10,244.58 was filed in the California trial court on March 11, 1985 (second cost memorandum). These costs related to the debtors' unsuccessful appeal to the California Court of Appeals and petition to the California Supreme Court.
The claims held by the applicants were scheduled by the debtors as disputed claims. The court ordered all holders of disputed claims to file claims on or before July 31, 1981. Each applicant filed a claim prior to that deadline. None of these claims sought postpetition costs of preserving and defending the California judgment.
The debtors' joint plan of reorganization was confirmed on April 21, 1982. The confirmed plan provides for the payment of timely filed allowed claims.
The applicants by their motion request the payment of costs from the deposit established as substitute collateral for the applicants' claims. The debtors object to the payment of all such costs which were entered in the margin of the California judgment postpetition primarily because the applicants did not obtain a relief from stay from the bankruptcy court before they submitted the cost memoranda to the California trial court. The applicants respond that the lifting of the automatic stay by the bankruptcy court at the request of the debtors on May 11, 1981 was sufficient court action for them to recover the execution costs represented by the first cost memorandum. Further, the applicants argue that the costs of the appeal were solely postpetition claims not subject to the automatic stay.
The Court is asked to deal with two distinct types of costs by the present motion. The Court must first decide whether or not the execution costs represented by the first cost memorandum constituted a "claim" within the meaning of the Bankruptcy Code on the date the petition was filed. Secondly, the Court must determine whether or not the costs associated with defending the judgment through the ultimately unsuccessful appellate process constitute the same type of "claim."
Under the Bankruptcy Act, the claims presently before the Court would not likely have been allowed. For an unliquidated or contingent claim to be allowed, Section 57(d) of the Act required that it be liquidated or capable of estimation without undue delay to estate administration. Debts not capable of such proof were excluded from discharge and the claimant was allowed to pursue his claim after discharge. See 11 U.S.C. § 35(a) (1976) (Act Section 17). These provisions frequently resulted in unequal distribution among similarly situated claimants. Reorganized debtors were often saddled with nondischargeable debts and the sheer volume of litigation of such nondischarged claims could seriously threaten a debtor's ability to reorganize. See, In re Pettibone Corp., 90 B.R. 918, 923-24 (Bankr.N.D.Ill.1988).
In an effort to broaden the scope of discharge, the drafters of the Bankruptcy Code eliminated the provability requirement. H.R. 8200, 95th Cong., 1st Sess. § 101(4)(A)(1977), reprinted in 1978 U.S. Code Cong. and Admin.News 5787, 5963, 6141 ( )
An essential element of the Bankruptcy Code's scheme for a broader discharge is an expanded definition of "claim." A "claim" is now defined as 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. § 101(4)(A). The legislative history supporting the definition of "claim" indicates that the "broadest possible definition" was intended by Congress so that "all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case" and "the broadest possible relief" will be afforded a debtor. H.R. 595, 95th Cong., 1st Sess., 309 (1977), reprinted in 1978 U.S.Code Cong. and Admin.News 5963, 6266; S.Rep. No. 989, 95th Cong., 2d Sess., 21-22 (1978), reprinted in 1978 U.S. Code Cong. and Admin.News 5787, 5807-08. This broad definition of "claim" is intertwined with the claims allowance provision in Section 502 which now provides an estimation process for contingent or unliquidated claims. 11 U.S.C. § 502(c).
The Bankruptcy Code stays only those proceedings which were commenced or could have been commenced prepetition and proceedings on claims which arose prepetition. See 11 U.S.C. § 362(a)(1). The automatic stay has no effect whatsoever upon claims which arose after the petition was filed. See, e.g., Turner Broadcasting System, Inc. v. Sanyo Electric, Inc., 33 B.R. 996, 999 (N.D.Ga.1983), aff'd, 742 F.2d 1465 (11th Cir.1984). The interaction of Sections 101(4) and 502(c), along with the operation of the automatic stay under Section 362(a), "give authority for bankruptcy courts to deal comprehensively with all facets of reorganization." In re Pettibone Corp., supra at 925.
The parties point out a split of authority between the circuits regarding the interpretation under Section 362(a)(1) of when a right to payment of an unmatured claim arises.
The applicants support adoption of the view held by the Third Circuit. In Matter of M. Frenville Co., 744 F.2d 332 (3rd Cir.1984), cert. denied, 469 U.S. 1160, 105 S.Ct. 911, 83 L.Ed.2d 925 (1985) the Circuit Court held that the automatic stay was inapplicable to a situation in which the acts of the debtor which gave rise to the cause of action occurred prepetition but a state cause of action based on those acts did not arise until postpetition.2 The Third Circuit distinguished the result in Frenville from situations involving indemnity or security contracts where the parties agree in advance that one will indemnify the other in the event a specified event occurs. In the case of such a contract, the Third Circuit acknowledges that a right to payment, albeit contingent, exists upon the signing of the agreement. Id. at 336.
The debtors respond by citing several cases which expressly and openly criticize the result reached in Frenville. In In re Black, 70 B.R. 645 (Bankr.D.Utah 1986) the court held that "to read § 101(4) as the movants suggest and as Frenville does would have the effect of judicially writing the terms `contingent' and `unmatured' out of the definition, and redrafted sic the clear legislative intent to expand the `claim' concept." Id. at 650. See also Matter of Johns-Manville Corp., 68 B.R. 618, 628-29 (Bankr.S.D.N.Y.1986) (); In re Johns-Manville Corp., 57 B.R. 680, 690 (Bankr.S.D.N.Y.1986) (); In re Edge, 60 B.R. 690, 704 (Bankr.M.D.Tenn.1986) ()
This Court is persuaded by the reasoning of the cases from outside of the Third Circuit. Those cases appear to be more faithful to the clear legislative intent of eliminating the element of "provability" as existed under the Bankruptcy Act. Further, the interpretations made by such courts more effectively give full meaning to each and every word of Section 101(4), particularly the words "contingent" and "unmatured." 11 U.S.C. § 101(4)(A). It must follow that the costs represented by the first cost memorandum fit the definition of claim, arose prepetition and are, therefore, discharged because of the applicants' failure to file a timely proof of claim covering these items.3
The matter of the second cost memorandum which deals exclusively...
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