In re Vancleef

• Decision Date: 28 September 2012
• Docket Number: No. 07–21960 JPK.,07–21960 JPK.
• Parties: In re Terry L. VANCLEEF, Debtor.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana

479 B.R. 809

In re Terry L. VANCLEEF, Debtor.

No. 07–21960 JPK.

United States Bankruptcy Court,
N.D. Indiana,
Hammond Division.

Sept. 28, 2012.

[479 B.R. 810]

Daniel W. Matern, Chicago, IL, for Debtor.

MEMORANDUM OF DECISION
J. PHILIP KLINGEBERGER, Bankruptcy Judge.

The matter addressed by this Memorandum of Decision is essentially a hybrid issue arising from multiple objections filed by the debtor Terry L. VanCleef (“VanCleef”) to matters brought before the court by actions of Stacia L. Yoon, Trustee of the Chapter 7 bankruptcy estate of Terry L. VanCleef (“Trustee Yoon”). The genesis of the matter is the record # 33 Trustee's Application for Compensation and Expenses filed by Trustee Yoon on November 4, 2011, to which VanCleef responded by his record # 41 Debtor's Motion to Suspend Judgment. Additionally, as record # 39 filed on November 28, 2011, VanCleef filed his Debtor's Omnibus Objection to Claims Number 3 Through 18,

[479 B.R. 811]

stating his assertions of objection to claims which Trustee Yoon filed on November 2, 2011 with respect to all but one creditor listed by VanCleef in the Schedule F initially filed in his case.¹ In addition to asserting that each of the claims filed by Trustee Yoon suffer from procedural and documentary insufficiencies, VanCleef asserts generally that applicable provisions of the Bankruptcy Code do not authorize a Chapter 7 Trustee to file claims on behalf of creditors—who had been provided with notice of the claims' filing deadline and had not filed claims—under the circumstances of this case. Trustee Yoon responds that applicable provisions of law indeed authorized her to file claims on behalf of these creditors.

The court deemed the Omnibus Objection to be an appropriate document by which to contest all of the claims filed by Trustee Yoon and to contest the underlying legal premise which she asserted allowed her to do so. Technically, each claim and the objection to it constitutes a separate contested matter. Rather than conduct separate hearings with respect to each claim objection, the court determined that the underlying legal issue concerning the premise utilized by Trustee Yoon with respect to filing of claim numbers 3 through 18 would first be addressed. By record entry # 51, the court entered the following order:

It is ORDERED that the court's entry of a final order regarding the record # 33 application is suspended pending determination of the debtor's objections to claims filed by the trustee on behalf of creditors.

The United States Trustee declined to file a legal memorandum. By record entry # 52, the court suspended final consideration of Trustee Yoon's # 33 Application and VanCleef's objection thereto “pending determination of the debtor's objections to claims filed by the trustee on behalf of creditors”. The parties filed their respective legal memoranda; by record entry # 67, the court denied Trustee Yoon's motion to strike VanCleef's memorandum because it was filed one day after the deadline established by the court.²

The issue in the contested matter presently before the court, addressed by this memorandum of decision, is the scope of 11 U.S.C. § 501(c) and Fed.R.Bankr.P. 3004 in the context of a Chapter 7 Trustee's filing of proofs of claim on behalf of creditors who themselves failed to, or declined to, file timely claims of their own.

The court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a) and (b); and N.D.Ind.L.R. 200.1. The matter before the court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B) and (O).

ANALYSIS

Some background concerning case number 07–21960 will set the stage for the issue to be addressed.

Case number 07–21960 was initiated by a voluntary petition filed by Terry L. VanCleef on July 27, 2007. VanCleef's Schedules

[479 B.R. 812]

—including Schedules D, E and F in relation to his disclosure of creditors and debts—were also filed on July 27, 2007. Stacia L. Yoon was appointed as the Trustee to administer the bankruptcy estate in this case, and she filed a “no asset report” on August 29, 2007. VanCleef was granted his discharge by order entered as record entry # 10 on November 5, 2007, and the case was closed by order entered on November 8, 2007.

In 2010, VanCleef—through his attorney—advised Trustee Yoon that VanCleef appeared to have a claim in a class action lawsuit brought against Glaxo Smith Kline with respect to the drug Advandia (used in the treatment of diabetes). ³ Trustee Yoon filed a motion to reopen the Chapter 7 case to administer assets—the class action claim proceeds; obtained an order (record # 19) authorizing the Trustee to employ counsel to represent the Trustee in the case; and by record # 21 filed a Preliminary Inventory Report and Request for Notice to Creditors, pursuant to Fed.R.Bankr.P. 3002(c)(5). The notice required by that Rule was provided (record entry # 22); as previously noted, only NorthWest Indiana Cardiovascular filed a claim in response to the notice. Following the claim filing deadline provided to noticed creditors, Trustee Yoon then filed claims on behalf of all unsecured creditors listed in VanCleef's Schedule F, with the exception of NorthWest Indiana Cardiovascular. In each of those claims, the Trustee designated the amount of the claim as the amount of the debt stated by the debtor in relation to that creditor in Schedule F, and utilized the addresses for those creditors provided by VanCleef at the inception of his case. The case then proceeded as previously stated above.

The principal statutory provision at play in this case is 11 U.S.C. § 501(c), which states:

(c) If a creditor does not timely file a proof of such creditor's claim, the debtor or the trustee may file a proof of such claim.

The principal bankruptcy rule involved is Fed.R.Bankr.P. 3004, which in pertinent part states:

Rule 3004. Filing of Claims by Debtor or Trustee

If a creditor does not timely file a proof of claim under Rule 3002(c) or 3003(c), the debtor or trustee may file a proof of the claim within 30 days after the expiration of the time for filing claims prescribed by Rule 3002(c) or 3003(c), whichever is applicable. The clerk shall forthwith give notice of the filing to the creditor, the debtor and the trustee.

Trustee Yoon asserts that the plain language of the foregoing provisions enables her, as the Chapter 7 Trustee, to file

[479 B.R. 813]

claims on behalf of creditors designated by the debtor in the event that such a creditor does not timely file its own proof of claim. In support of her position, she cites a number of cases which indeed determined that there is no reason to look behind the supposed, clear meaning of the statutory and rule language, and thus that a Chapter 7 Trustee can file claims particularly on behalf of general unsecured creditors who do not file their own timely claims. The court will designate this approach as the “hose the debtor” position.

VanCleef, on the other hand, asserts that a Chapter 7 Trustee's filing of claims on behalf of general unsecured creditors in particular who do not file timely claims of their own is outside the scope of, and not within the intended purpose of, either 11 U.S.C. § 501(c) or Fed.R.Bankr.P. 3004. VanCleef cites a number of cases which support his position, and which in essence review the origins for bankruptcy law's allowing a debtor or a trustee to file claims on behalf of creditors who do not do so, determining that the primary scope and purpose of these provisions is to allow the debtor to essentially deal with nondischargeable debts. The court will label this approach as the “put out the fire” approach.

Trustee Yoon's approach—while purportedly based upon a clear reading of legal provisions—results in divestiture of distribution to a debtor pursuant to 11 U.S.C. § 726(a)(6) in a circumstance in which distribution in a Chapter 7 case would otherwise result in the balance of estate property—after payment primarily of administrative claims—being returned to the debtor. Apart from purported adherence to statutory and rule language, the court views the underlying philosophy of this approach to be that a debtor who files a Chapter 7 case and obtains a discharge is not entitled to return of property if there are any claimants under any circumstance to which property of the estate might otherwise be distributed, ergo, “hose the debtor”. The counter interpretation emphasizes that historically, bankruptcy provisions which allowed a debtor to file claims on behalf of creditors when creditors did not do so was primarily to benefit the debtor in relation to reducing the amounts of nondischargeable debts, including tax claims and child support claims; and to reduce co-obligor claims—hence, “put out fires”.

The court tasked the parties with focusing in their legal memoranda on whatever legislative history there might be which discussed in any manner the scope and intent of 11 U.S.C. § 501(c) and Fed.R.Bankr.P. 3004. The Rule essentially only implements the statute, and thus it is the focus, scope and intent of the statute which is necessary to explore.

This court customarily does not deem legislative history, or the comments of proponents of legislation, to be of much relevance in determining the construction to be given to a statute, whether or not that statute appears on its face to be ambiguous. This view is a shared one. As stated in Exxon Mobil Corporation v. Allapattah Services, Inc., 545 U.S. 546, 125 S.Ct. 2611, 2626, 162 L.Ed.2d 502 (2005):

As we have repeatedly held, the authoritative statement is the statutory text, not the legislative history or any other extrinsic material. Extrinsic materials have a role in statutory interpretation only to the extent they shed a reliable light on the enacting Legislature's understanding of otherwise ambiguous terms. Not all extrinsic materials are reliable sources of insight into legislative understandings, however, and legislative history in particular is vulnerable...