In re OTC Net, Inc., Bankruptcy No. 82 J 1153.

• Decision Date: 23 November 1983
• Docket Number: Bankruptcy No. 82 J 1153.
• Citation: 34 BR 658
• Parties: In re OTC NET, INC., Debtor.
• Court: U.S. Bankruptcy Court — District of Colorado

34 B.R. 658 (1983)

In re OTC NET, INC., Debtor.

Bankruptcy No. 82 J 1153.

United States Bankruptcy Court, D. Colorado.

November 23, 1983.

Josephine S. Weirich, Davis, Graham & Stubbs, Denver, Colo., for Glen E. Keller, Jr., trustee.

Theodore H. Focht, Gen. Counsel, Michael E. Don, Assoc. Gen. Counsel, George F. Bingham, Asst. Gen. Counsel, Josephine Wang, Atty., Washington, D.C., for Securities Investor Protection Corp.

David A. Zisser, Fishman, Geman, Gersh & Bursiek, P.C., Denver, Colo., for claimant Juan Carlos Schidlowski.

Lee Foreman, Haddon, Morgan & Foreman, Denver, Colo., for claimant Joseph V. Pignatiello.

Andrew J. Simpson, Boulder, Colo., for claimants Robert J. McIlvenna, John H. Kallman, Alice Durham O'Shea and Kristin Ebbighausen.

Joseph F. Krys, Krys, Boyle, Golz & Keithley, Denver, Colo., for claimant Terri Italiano.

J.T. Larson, San Francisco, Cal., for claimant Dickie Ueno.

Clayton W. Bell, Boulder, Colo., for claimant Glen G. Losurdo.

Philip E. Hughes, Jr., Blue Bell, Pa., for claimant DAD Inv. Club.

Herbert W. DeLaney, Jr., Denver, Colo., for claimant Craig Weiss.

Richard I. Brown, Atler, Zall & Haligman, P.C., Englewood, Colo., for claimant Fidelity Bank of Denver.

Paul D. Rubner, Denver, Colo., for claimant Sandra Solomon.

MEMORANDUM OPINION AND ORDER

ROLAND J. BRUMBAUGH, Bankruptcy Judge.

THIS MATTER comes before the Court on the Court's Order and Notice to All Claimants, Trustee, and SIPC for Briefs filed October 11, 1983, and the Trustee's Petition for Instructions filed September 21, 1983.

In the Petition for Instructions, the Trustee informed the Court of a possible surplus of assets in this estate after payment of administrative expenses and timely-filed claims (both customer claims and other creditor claims). Assuming that surplus exists, the issue has been raised as to whether or not late-filed claims should share in that surplus pursuant to 11 U.S.C. § 726. There are approximately 250-300 late-filed claims which have been "disallowed" by the Court on the sole basis that such claims were not filed with the Trustee by January 10, 1983, which was the expiration date of the six-month period provided for in 15 U.S.C. §§ 78fff-2(a)(1) and (3).

The pertinent statutes and rules which have a bearing on this issue are as follows: Section 57n of the Bankruptcy Act, 11 U.S.C. § 93n superseded by 11 U.S.C. § 726(a) of the Bankruptcy Code; 15 U.S.C. § 78fff-2(a)(3); 15 U.S.C. § 78fff(e); 11 U.S.C. § 726(a); Bankruptcy Rule 2002(a); Bankruptcy Rule 302(e) superseded by Bankruptcy Rule 3002(c); and Bankruptcy Rule 3002(c). These are set forth in full in the Appendix attached hereto.

Historically, Section 57n of the Bankruptcy Act (11 U.S.C. § 93n), set a six-month filing limit, with certain exceptions. The exceptions, including the surplus exception, were incorporated into the Bankruptcy Act to codify certain judicially created exceptions to this six-month statute of limitations and to prevent an expansion of those exceptions. See Hearings on H.R. 8046 Before the House Comm. on the Judiciary, 75th Cong., 1st Sess. at 115-16 (1937). See also In re Dunn, 38 F.Supp. 1017 (W.D.Wash. 1941); In re Walden, 43 F.Supp. 359 (W.D. Mo.1942).

Addressing the surplus exception specifically, Congress said:

There is also added a new and much-needed provision in the interests of creditors who have failed to file and prove their claims within the bar time, in a case, which occasionally occurs, where creditors who have duly filed and proved their claims are paid in full and there is a surplus remaining. In such a situation it is only fair and equitable that, as between the barred creditors and the debtor, such surplus should go to the barred creditors rather than to the debtor.

H.R.Rep. No. 1409, 75th Cong., 1st Sess. 14 (1937), cited in In re Berg, 33 F.Supp. 700 at 703 (D.Minn.1940).

In the Securities Investor Protection Act (SIPA) of 1970¹, Congress simply provided that any claim filed "after the time specified in section 57n of the Bankruptcy Act" must be disallowed. In 1978, certain amendments to SIPA carried forward the exceptions to Section 57n provided that a request for extension was filed within the six-month period and for good cause shown. There is no mention in the current Section 78fff-2(a)(3) of a specific exception to, or suspension of, the filing period in the event of a surplus. However, Section 78fff(e) provides that the priorities of distribution shall be as provided in 11 U.S.C. § 726. And, § 726(a) does provide a priority designation for late-filed claims.

In all the cases under Section 57n as applied in SIPA cases, the Courts have been uniform in holding that Section 78fff-2(a)(3) is an absolute bar against late-filed claims. See, e.g., In re Pigott, 684 F.2d 239 (3rd Cir.1982); In re Mellen Mfg. Co., 287 F.2d 37 (3rd Cir.1961) cert. denied 366 U.S. 962, 81 S.Ct. 1922, 6 L.Ed.2d 1254 (1961); In re Securities Investor Protection Corporation, 414 F.Supp. 679 (D.Minn.1975); and Securities Exchange Commission v. Tieg Ross, Inc., 473 Civ. 107 (D.Minn.1974). But this Court has been unable to find any case interpreting these sections where the estate was solvent. In the reported decisions, the estates were either insolvent, or the solvency of the estate was unspecified.

It is obvious that Section 78fff-2(a)(3) was intended to bar untimely claims of those seeking to share in a limited, insolvent estate. Congress was trying to strike a balance between SIPA's goal of customer protection and the burden imposed upon the Securities Investor Protection Corporation (SIPC) and its members who must advance funds to satisfy net equity claims of customers². Also, by providing for a strict statute of limitations, Congress sought to ensure a prompt liquidation process. 15 U.S.C. § 78fff(a). See Hearings on H.R. 8331 Before the Subcomm. on Consumer Protection and Finance of the Comm. on Interstate and Foreign Commerce, 95th Cong., 1st Sess. at 178 (1977); H.R.Rep. No. 746, 95th Cong., 1st Sess. 28 (1977).

A SIPA liquidation proceeding is to be conducted in accordance with certain chapters and subchapters of the Bankruptcy Code, 15 U.S.C. § 78fff(b), including portions of chapter 7, if those parts of the Code are consistent with SIPA. The estate, to the extent it can, pays the costs of administering the estate. 15 U.S.C. § 78fff(e). And the priorities of distribution are set forth by that section as the same as those in 11 U.S.C. § 726.

Under Section 726(a)(3), late-filed claimants are given a third priority.³ This section carries forward previous law as found in Section 57n of the Bankruptcy Act and former Bankruptcy Rule 302(e)(5) in permitting late filed claims, otherwise valid, to share in a surplus of an estate. The current Bankruptcy Rule 3002(c)(6) also provides a mechanism to implement that part of the Bankruptcy Code, although Bankruptcy Rule 2002(a)(4) now specifies a notice requirement setting a final date for the filing of such claims.

If the Court were to accept as absolute, in all cases, both solvent and insolvent, the mandate of Section 78fff-2(a)(3), it would, in effect, nullify and give no meaning or purpose to Section 78fff(e). This the Court cannot do. The proper rule of statutory construction provides that where possible, statutes are to be given such effect that no clause, sentence, or word is rendered superfluous, contradictory, or insignificant. E.E.O.C. v. Continental Oil Co., 548 F.2d 884 (10th Cir.1977). In a case where portions of a statute appear to conflict, a construction which would give effect to both provisions should be adopted. The only such construction here would be to interpret Section 78fff-2(a)(3) as an absolute bar to untimely claims except as provided therein, but in the event of a surplus, to allow such untimely claims in accordance with Section 78fff(e) and Bankruptcy Rules 202(a) and 3002(c) and to distribute such surplus as mandated by Section 726 of the Bankruptcy Code. This would give effect to all relevant provisions of SIPA and would give maximum effect to the Congressional intent of protecting individual investors from financial hardship which can result from the failure of major financial institutions. This is the interpretation adopted by this Court.

All of the late-filed claims presented to the Court thus far have been "disallowed" because they were untimely. The merits of such claims have not been examined. Perhaps the choice of the word "disallowed" was a poor choice. The Bankruptcy Code in 11 U.S.C. § 502(b) sets forth all of the grounds upon which the Court may "disallow" a claim, and untimeliness is not such a ground. So far as the Court's use of the term "disallowed" is concerned, it should and does have no other meaning in connection with these late-filed claims considered to date, than to mean that such claims are found to be untimely and late.

IT IS THEREFORE ORDERED that the Trustee herein shall notify all claimants herein, whose claims have been determined to be untimely, of the Court's ruling herein, and to file with the Court a copy of said notice together with a certificate of mailing thereof.

FURTHER ORDERED that all such late-filed claims are hereby determined to be timely filed for purposes of Bankruptcy Rule 3002(c).

FURTHER ORDERED that the Trustee shall inform the Court at the appropriate time in the administration of the estate when he has determined with certainty that a surplus will exist. At that time, appropriate notices shall be sent in accordance with Bankruptcy Rule 2002(a)(4).

FURTHER ORDERED that the Trustee shall examine the late-filed claims thus far determined and

(1) if such claims are for stocks or warrants currently held in the estate, and the claims are otherwise valid, the Trustee shall set aside so many of such stocks or warrants as may be needed to satisfy such claims; and

(2) the Trustee shall in an expeditious manner proceed to liquidate the remaining stocks, warrants, or other

...