In re Zimmerman
| Decision Date | 01 July 1993 |
| Docket Number | Bankruptcy No. SG91-86620,SG92-01892. |
| Citation | 156 BR 192 |
| Parties | In re Raymond M. ZIMMERMAN, Debtor. In re Larry D. & Shirley J. NEUMAN, Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
DeGroot, Keller & Vincent, (James M. Keller, argued and briefed) Grand Rapids, MI, for debtors Raymond M. Zimmerman and Larry D. and Shirley J. Neuman.
Department of the Atty. Gen., (James D. Clarke, argued and briefed), Lansing, MI, for the Michigan Dept. of Treasury, Revenue Div.
Office of the U.S. Atty. (Tanya M. Marcum, and Terry L. Zabel, argued and briefed) Grand Rapids, MI, for the U.S.I.R.S Brett N. Rodgers (argued and briefed) Grand Rapids, MI, for chapter 13 standing trustee Raymond B. Johnson.
Paul F. Davidoff, P.C. (Paul F. Davidoff, briefed) Kalamazoo, MI, for amicus curiae chapter 13 standing trustee Joseph A. Chrystler.
Alexander C. Lipsey (argued), Kalamazoo, MI, for amicus curiae chapter 13 standing trustee Joseph A. Chrystler.
Before LAURENCE E. HOWARD, Chief Judge; JAMES D. GREGG, and JO ANN C. STEVENSON, Bankruptcy Judges.
EN BANC OPINION REGARDING THE ALLOWANCE OF LATE CLAIMS IN CHAPTER 13 PROCEEDINGS
This court has taken the unusual measure of sitting en banc to decide an unusual issue: whether late claims must be allowed in chapter 13 cases. This question gained attention as the result of another en banc decision, In re Hausladen, 146 B.R. 557 (Bankr.D.Minn.1992). That court made a facially appealing argument that lateness is not a basis for disallowance under 11 U.S.C. § 502(b). However, this panel rejects the interpretation of § 502 espoused by the Hausladen court, concluding that the issue is not so much one of claim disallowance under the substantive provisions of § 502 as it is of procedure.
This is a contest of legal theories; the facts of the cases are straightforward. In Zimmerman, the debtor commenced his chapter 13 proceeding on December 13, 1991. His plan of reorganization was confirmed on April 6, 1992. The state of Michigan was scheduled as a creditor, but failed to file a claim before the May 10, 1992 bar date. A late claim was filed by the Michigan Department of Treasury (the "Department") on October 1, 1992 in the amount of $2,315.51 for withholding and single business tax liabilities to which the debtor objected.1 The only argument advanced by the Department of Treasury in support of allowing its claim is that this court should adopt the reasoning set forth in Hausladen.
The Neuman chapter 13 case was filed on March 26, 1992 and the plan confirmed on June 22, 1992. The bar date for claims was set as August 16, 1992. On December 29, 1992 the Internal Revenue Service (the "Service") filed a claim in the amount of $42,536.97. This claim was based upon a civil penalty assessed against debtor Larry Neuman as a responsible person for the failure of Star-Con, Inc. (a corporation in which he was an officer) to pay employment taxes. As in Neuman, the debtors objected to allowance of the claim on the basis of lateness. The Service raised Hausladen in defense of the claim, but it also asserted that certain fact issues exist as to whether the notice it received of the bankruptcy was sufficient to apprise it of the debtor's relationship to Star-Con, Inc.2 At hearing counsel for the Service attempted to make an offer of proof as to this and other fact issues, but was not allowed to do so on the basis that such an offer was premature. Counsel was informed that if this court declined to adopt Hausladen the Service would have an opportunity to address the factual peculiarities of its case at a later date outside the en banc setting.
Jurisdiction exists in this matter under 28 U.S.C. § 1334(b). Because this is a claim allowance matter, it is a core proceeding under 28 U.S.C. § 157(b)(2)(B).
In Hausladen the Minnesota en banc decision addressed the exact issue which now confronts this court: "Whether a claim filed in a Chapter 13 case after the 90-day deadline set by Rule 3002(c) of the Federal Rules of Bankruptcy Procedure should be disallowed?" Hausladen, 146 B.R. at 558. That panel concluded that a claim filed after the 90-day deadline would not be disallowed. Instead, the court posited that the timeliness of a claim relates only to the claim's priority. These conclusions were derived from the Minnesota bankruptcy court's interpretation of § 502 of the Code. Section 502, "Allowance of claims or interest," states:
11 U.S.C. § 502. The Minnesota court focused closely upon the use of the word "except" used in § 502(b). The court stated that the eight enumerated items following the phrase "except to the extent that" are the only reasons a claim may be disallowed under the Code. Because lateness is not an enumerated ground, the court concluded that a claim may not be disallowed for that reason. Hausladen, 146 B.R. at 559.
The Minnesota court read FED. R.BANKR.P. 3002 to be consistent with its interpretation of § 502. Hausladen, 146 B.R. at 560, n. 5. Rule 3002 states:
The court stated that Rule 3002 does not explicitly require filing within the 90-day period for the claim to be allowed, although the court recognized that such an interpretation is implied by the rule. Therefore, it concluded, reading the rule to require filing within the 90-day period is erroneous:
This erroneous reading arose when the drafters of the new Rule 3002 hastefully copied the substance of old Rule 302 without paying any attention to the major change in the underlying statute. Under the Bankruptcy Act, late claims were explicitly disallowed. Section 57(n) of the Act provided that . . . "claims which are not filed within six months after the first date set for the first meeting of creditors shall not be allowed. . . ." 11 U.S.C. § 93(n) (repealed Oct. 1, 1979) (emphasis added). The old Bankruptcy Rule implemented this time bar. However, a time bar does not expressly exist under the Code or Rules.
Hausladen, 146 B.R. at 559 (emphasis in original; footnote omitted).
The Minnesota court stated that the 90-day filing deadline established by Rule 3002 relates to the classification of claims as timely or tardy. This classification determines the priority of a claim. In support of its position the court pointed to § 726 of the Code which provides for the payment of tardily filed claims in a chapter 7 case. While acknowledging that no equivalent section of the Code exists in chapter 13, the court stated instead that the chapter 13 plan controls the treatment of tardily filed claims. Id. at 560. Although the court cited to no section of chapter 13 for this conclusion, it determined that its construction was supported by the unambiguous language of the statute. "When Congress speaks as clearly as it has done here, the plain meaning of the legislation is conclusive . . ." Id. at 558 (citing United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242-43, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290 (1989)) In such cases, reference to "legislative history and to pre-Code practice is not necessary." Id. at 558 (citing Ron Pair, 489 U.S. at 241, 109 S.Ct. at 1030).
The reasoning of Hausladen parallels the reasoning of two cases decided after the Code was enacted but before the current Federal Rules of Bankruptcy Procedure were promulgated. See In re Corbett, 27 B.R. 442 (Bankr.W.D.Mo.1983), rev'd, 68 B.R. 480 (W.D.Mo.1984); In re Collins, 33 B.R. 203 (Bankr.E.D.N.C.1983); but see In re Pennetta, 19 B.R. 794 (Bankr.D.Colo.1982); In re Foster, 11 B.R. 476 (Bankr.S.D.Cal.1981); In re Walter, 10 B.C.D. 791, 29 B.R. 449 (Bankr.S.D.N.Y. 1982) (). During this transitional period, § 405 of the Reform Act of 1978 provided that the rules in effect when the Code became effective would continue to the extent the old rules were not inconsistent with the Code. These cases held that old Rule 13-302, which did not allow late claims, was inconsistent with § 502 of the Code. The Bankruptcy Court for the Western District of Missouri allowed late claims but stated that "the Court recognizes the violence done to the plain language of the statute and rules but concludes that the policy of payment to creditors implicit in Chapter 13 cases is of overriding importance." Corbett, 27 B.R. at 444.
Courts ruling on the late filing of claims in chapter 13 cases in the wake of Hausladen have split on whether that case is correctly decided. Only two cases to date have been decided on similar facts. General Motors Acceptance Corp. v. Judkins (In re Judkins), 151 B.R. 553 (Bankr.D.Colo. 1993), follows Hausladen, while In re Bailey, 151 B.R. 28 (Bankr.N.D.N.Y.1993) takes the opposite view. Other cases not involving the factual scenario now before the court have also cited Hausladen favorably. Two such cases decided in the context of late claims filed by the IRS in chapter 7 cases are Lastra v. Blood Services Program of the American Red Cross (In re Corporacion de Servicios Medico-Hospitalarios de Fajardo, Inc.), 149 B.R. 746 (Ban...
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