In re IFC Credit Corp.

• Decision Date: 05 December 2011
• Docket Number: No. 11–2172.,11–2172.
• Citation: 663 F.3d 315,55 Bankr.Ct.Dec. 210
• Parties: In re IFC CREDIT CORPORATION, Debtor.Appeal of Northbrook Bank & Trust Company.
• Court: U.S. Court of Appeals — Seventh Circuit

55 Bankr.Ct.Dec. 210

663 F.3d 315

In re IFC CREDIT CORPORATION, Debtor.Appeal of Northbrook Bank & Trust Company.

No. 11–2172.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 17, 2011.Decided Dec. 5, 2011.

William J. Dorsey (argued), Attorney, Katten Muchin Rosenman LLP, Chicago, IL, for Appellant.

Allen J. Guon (argued), Attorney, Shaw Gussis Fishman Glantz Wolfson & Towbin LLC, Chicago, IL, for Trustee–Appellee.

Before BAUER, POSNER, and WOOD, Circuit Judges.

POSNER, Circuit Judge.

IFC Credit Corporation voluntarily declared bankruptcy under Chapter 7 of the Bankruptcy Code on July 27, 2009. Its bankruptcy petition was signed only by its president, however, and he is not a lawyer—a slip that precipitated this appeal—though the next day the company filed an amended petition signed by a lawyer.

Prior to the filing of the bankruptcy petition, a creditor of IFC (Northbrook Bank & Trust—actually its predecessor, First Chicago Bank & Trust, but we can ignore that detail) had sued IFC, charging fraud. Upon the filing of the original petition, all suits against the debtor were automatically stayed. 11 U.S.C. § 362(a)(1). So Northbrook refiled its fraud complaint as a claim in the bankruptcy proceeding. In response, IFC's trustee in bankruptcy moved to rescind payments of pre-petition debts that IFC had made to Northbrook, on the ground that the payments were voidable preferences because they had been made within 90 days before the declaration of bankruptcy. See 11 U.S.C. § 547(b), (f). The parties settled the trustee's preferences claim conditional on a determination that the bankruptcy court had had jurisdiction over it.

Northbrook's jurisdictional argument, rejected by the bankruptcy and district judges and now pressed on us, is that the fact that the original petition for bankruptcy was not signed by a lawyer made the bankruptcy proceeding void, or as state court cases say (though the question whether a person or firm or other entity may litigate in federal court pro se is a question of federal procedural law rather than of state law, Elustra v. Mineo, 595 F.3d 699, 704 (7th Cir.2010)), a “nullity.” E.g., Applebaum v. Rush University Medical Center, 231 Ill.2d 429, 326 Ill.Dec. 45, 899 N.E.2d 262, 266 (2008); Downtown Disposal Services, Inc. v. City of Chicago, 407 Ill.App.3d 822, 347 Ill.Dec. 895, 943 N.E.2d 185, 194–95 (2011), appeal allowed, ––– Ill.2d ––––, 351 Ill.Dec. 2, 949 N.E.2d 1097 (2011); Torrey v. Leesburg Regional Medical Center, 769 So.2d 1040, 1044–45 (Fla.2000); cf. Brewer v. Poole, 362 Ark. 1, 207 S.W.3d 458, 466 (2005). If so, the absence of jurisdiction could not be cured by amending the petition, as IFC had done the day after filing it.

Bankruptcy Rule 9011(a) allows the omission of a signature, including we assume the signature of a lawyer, to be “corrected promptly.” But it is unclear whether the corporation in this case was represented and its lawyer just accidentally failed to sign the pleading. For the complaint was signed, only by a person—IFC's president—ineligible to sign because he was not a lawyer. IFC's house counsel had, it is true, supervised the preparation of the petition and filed it with the clerk of the bankruptcy court. But we haven't been told why she didn't sign it. Without an answer to that question we can't determine whether Rule 9011(a) is applicable.

We also set to one side the doctrine of “nunc pro tunc” (now for then). It is not a substitute for relation back. It can't be used to revise history, but only to correct inaccurate records. Central Laborers' Pension, Welfare & Annuity Funds v. Griffee, 198 F.3d 642, 644 (7th Cir.1999); King v. Ionization Int'l, Inc., 825 F.2d 1180, 1188 (7th Cir.1987); United States v. Suarez–Perez, 484 F.3d 537, 541 (8th Cir.2007).

So we must meet Northbrook's jurisdictional argument head on.

Corporations unlike human beings are not permitted to litigate pro se. Rowland v. California Men's Colony, 506 U.S. 194, 201–02, 113 S.Ct. 716, 121 L.Ed.2d 656 (1993); United States v. Hagerman, 545 F.3d 579, 581 (7th Cir.2008); Scandia Down Corp. v. Euroquilt, Inc., 772 F.2d 1423, 1427 (7th Cir.1985); Nixon, Ellison & Co. v. Southwestern Ins. Co., 47 Ill. 444 (1868); Berg v. Mid–America Industrial, Inc., 293 Ill.App.3d 731, 228 Ill.Dec. 1, 688 N.E.2d 699, 704 (1997). The reasons courts give for the rule—which really are just variations on the theme of distrust of nonlawyers' ability ever to conduct litigation in a competent and ethical fashion, see, e.g., Strong Delivery Ministry Ass'n v. Board of Appeals of Cook County, 543 F.2d 32, 33–34 (7th Cir.1976); Eagle Associates v. Bank of Montreal, 926 F.2d 1305, 1308 (2d Cir.1991); National Independent Theatre Exhibitors, Inc. v. Buena Vista Distribution Co., 748 F.2d 602, 609 (11th Cir.1984), since nonlawyers are not subject to discipline as members of the bar—apply equally to individuals. Yet individuals are permitted to litigate pro se, though not to represent other litigants, Elustra v. Mineo, supra, 595 F.3d at 704; see 28 U.S.C. § 1654, with some exceptions, such as tax advisers in Tax Court proceedings. Tax Ct. R. 200(a)(3); Hawkins v. Commissioner, 85 T.C.M. (CCH) 1530, 2003 WL 21436740, at *2 (U.S.Tax Ct.2003). See also Machadio v. Apfel, 276 F.3d 103, 107 (2d Cir.2002). Corporations have, it is true, on average more money for hiring lawyers than individuals do, but there are many tiny corporations and many wealthy individuals.

But there is a difference, unrelated to scale or resources, between individual self-representation and corporate representation. There is no agency problem when an individual represents himself (and remember that with just a few exceptions unless he is a lawyer he is forbidden to represent anyone other than himself), but there can be an acute agency problem when the pro se litigant is a corporation. A corporation can't literally represent itself; it has to be represented by an individual. And like any institution a corporation is itself a collective of individuals. In this case the president was representing the corporation (initially), but in other cases there might be a question whether the designated individual's relation to the corporation made him an appropriate representative of its owners. Confining corporate representation to lawyers mitigates the problem.

That is a reason why corporations are represented by lawyers rather than a reason why a corporation, acting through its board of directors, should be forbidden to select a nonlawyer to represent it in litigation. But a court does not permit an individual to represent another person; why should it treat corporations differently in this respect? Judges for good reason don't like dealing with pro se litigants and have better grounds for their antipathy when the pro se litigant is a corporation, not only because corporate representation is third party rather than first party but also because corporations enjoy a number of privileges denied individuals, such as the cloak of limited liability worn by their investors (whether individuals or other corporations), which enables corporations to raise equity capital more cheaply than individuals can. Inability to litigate pro se can be thought of as part of the price for corporations' privileges. United States v. Hagerman, supra, 545 F.3d at 581–82; Jadair Inc. v. United States Fire Ins. Co., 209 Wis.2d 187, 562 N.W.2d 401, 407 n. 14 (1997); Eckles v. Atlanta Technology Group, Inc., 267 Ga. 801, 485 S.E.2d 22, 26 (1997).

But is prohibiting corporations from litigating pro se a rule of federal subject-matter jurisdiction, as Northbrook insists, so that the only thing a federal court can do with a complaint (including a petition for bankruptcy) not signed by a lawyer is dismiss it? That might seem a question of no practical significance, since the complaint can be refiled forthwith, signed by a lawyer—as happened in this case. But the statute of limitations may have run in the interim, however brief. Moreover, preference liability in bankruptcy is limited to payments made to favored creditors within 90 days before the declaration of bankruptcy (unless the creditor is an insider, in which event the period is extended to a year, 11 U.S.C. § 547(b)(4)(B)) and so could be lost if the date of filing were delayed by even a day.

But we can't think why the rule barring corporations from litigating without counsel should be deemed a rule of subject-matter jurisdiction. In part to spare the courts the bother of addressing issues not presented by the parties, and also in recognition of the adversary character of the American adjudicative process, Henderson v. Shinseki, ––– U.S. ––––, 131 S.Ct. 1197, 1202, 179 L.Ed.2d 159 (2011) (“branding a rule as going to a court's subject-matter jurisdiction alters the normal operation of our adversarial system. Under that system, courts are generally limited to addressing the claims and arguments advanced by the parties. Courts do not usually raise claims or arguments on their own” (citation omitted)), the Supreme Court has taken a sharp turn toward confining dismissals for want of subject-matter jurisdiction to cases in which the federal tribunal has been denied by the Constitution or Congress or a valid federal regulation the authority to adjudicate a particular type of suit. See (besides Henderson ) Reed Elsevier, Inc. v. Muchnick, ––– U.S. ––––, 130 S.Ct. 1237, 1248, 176 L.Ed.2d 18 (2010); Union Pacific R.R. v. Brotherhood of Locomotive Engineers & Trainmen General Committee, ––– U.S. ––––, 130 S.Ct. 584, 596–98, 175 L.Ed.2d 428 (2009); Arbaugh v. Y & H Corp., 546 U.S. 500, 514–16, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006); Eberhart v. United States, 546 U.S. 12, 18–19, 126 S.Ct. 403, 163 L.Ed.2d 14 (2005) (per curiam); Scarborough v. Principi, 541 U.S. 401, 413–14, 124 S.Ct. 1856, 158 L.Ed.2d 674 (2004); Kontrick v. Ryan, 540 U.S. 443, 454–55, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004). These days, therefore,...