Matter of Baldwin-United Corp.

• Decision Date: 07 August 1985
• Docket Number: No. 1-83-02495.,1-83-02495.
• Citation: 52 BR 146
• Parties: In the Matter of BALDWIN-UNITED CORPORATION, D.H. Baldwin Company, et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

52 B.R. 146 (1985)

In the Matter of BALDWIN-UNITED CORPORATION, D.H. Baldwin Company, et al., Debtors.

No. 1-83-02495.

United States Bankruptcy Court, S.D. Ohio, W.D.

August 7, 1985.

Mark D. Plevin, O'Melveny & Myers, Washington, D.C., for petitioner.

Gene Mesh, Cincinnati, Ohio, David B. Gold, San Francisco, Cal., for respondents.

ORDER

RANDALL J. NEWSOME, Bankruptcy Judge.

These Chapter 11 cases are before the Court pursuant to the Debtors' objections to claims number 7094, 7142, 8013, 7178, 7350, 7351, 7352, 7353, 7354, 7355, 7356 and 7357, all of which purport to be "class proofs of claim."

The claims involved are of two types: one group of claims was filed on behalf of allegedly defrauded purchasers of various Baldwin-United Corporation ("BU") or D.H. Baldwin Co. ("DHB") securities;¹ the other group was filed on behalf of purchasers of single premium deferred annuities issued by Baldwin's subsidiary insurance companies.²

Debtors have objected to these claims on the basis that class proofs of claim are not authorized by either the Bankruptcy Code or the Rules of Bankruptcy Procedure. The Baldwin-United and D.H. Baldwin Unsecured Creditors' Committees and the Common Stockholders' Committee filed responses in support of the Debtors' objections. The claimants and the Securities and Exchange Commission all responded in opposition. Oral argument on the objections and responses was heard May 20, 1985.

The claimants put forth three arguments in their favor: First, they contend that the Bankruptcy Code and Rules permit them, as representatives, to file claims on behalf of others similarly situated. Second, they urge us to apply Federal Rule of Civil Procedure 23 to these claims, and third, they believe that equity dictates a ruling in their favor. For the following reasons we must reject all three arguments.

I. WHO MAY FILE A PROOF OF CLAIM.

Section 501(a) of the Bankruptcy Code provides that "a creditor or an indenture trustee may file a proof of claim. An equity security holder may file a proof of interest." Likewise, Bankruptcy Rule 3003(c)(1) states that "any creditor or indenture trustee may file a proof of claim within the time prescribed by subdivision (c)(3) of this rule." A "creditor" is defined as an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor." 11 U.S.C. § 101(9)(A). An "entity" is then defined as a "person, estate, trust, and governmental unit." 11 U.S.C. § 101(14). "Person" is defined in § 101(33) as including "individual, partnership, and corporation, but does not include governmental unit." Nowhere in the Code is "creditor" defined as a "class" or "representative" of a group or class.

Bankruptcy Rule 3001(b) provides that "a proof of claim shall be executed by the creditor or the creditor's authorized agent except as provided in Rules 3004 and 3005." (Emphasis supplied.) (Rules 3004 and 3005 allow, in certain circumstances, the filing of claims on behalf of creditors by the debtor or trustee, a guarantor, surety, indorser or other co-obligor.) A proof of claim, except a claim for wages, salary or commissions, must conform substantially to Official Form No. 19. Bankr.R. 3001(a). Official Form No. 19 has appropriate blanks to be filled in depending on whether the claimant is an individual, partnership, corporation or agent. The portion to be filled in by an agent requires the agent to list the name and address of the claimant on whose behalf he is filing the claim.

Both groups of objecting claimants urge that we find them to be "agents" under Rule 3001(b) for purposes of filing a class proof of claim.³ We decline to do so. None of the claimants, with the exception of the Boyle claimants, has even attempted to comply with Rule 2019(a) which requires that every person purporting to represent more than one creditor in a Chapter 11 reorganization file a verified statement with the clerk stating the names and addresses of those creditors, the nature and amount of their claims, when the claims were acquired, and the pertinent facts and circumstances in connection with the employment of the representative. The Rule 2019 statement filed by the Boyles is deficient in terms of listing the names and addresses of the purported class members, and when those persons acquired their claims.

Furthermore, while we recognize that the Stoller plaintiffs have been conditionally certified as class representatives in the District Court action, and the Boyle plaintiffs have been certified as class representatives in various multi-district SPDA proceedings pending in the Southern District of New York solely for purposes of approval or disapproval of a settlement,⁴ we do not believe that being a class representative is the equivalent of being an authorized agent for purposes of filing a proof of claim. The cornerstone of any agency relationship is its consensual nature. The Restatement on Agency defines agency as "the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act." Restatement (Second) of Agency § 1 (1958). Furthermore, the "agency relation exists only if there has been a manifestation by the principal to the agent that the agent may act on his account, and consent by the agent so to act." Id. § 15.

There has been no consent here. At the time these claims were filed there had been no class certification in any District, and since that time there has been an opportunity for the claimants purportedly represented here to "opt out" of the classes. Furthermore, the filing claimants did not notify their fellow claimants of their attempt to file a class claim. (Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). In addition, consent to being a member of a class in one piece of litigation is not tantamount to a blanket consent to any litigation the class counsel may wish to pursue:

Unlike most other entities created by law, . . . the class has procedural, rather than substantive, origins. It owes its existence to the perceived need for party consolidation in order to expedite litigation that would otherwise involve burden-some and conflicting individual suits.

Given this procedural basis, the creation of a class relates solely to a single common litigational event. All actions taken on behalf of the class must relate to that litigation and, upon conclusion thereof, the class ceases to exist.

In re Ross, 37 B.R. 656, 658 (Bkrtcy.App. 9th Cir.1984).

II. APPLICABILITY OF FEDERAL RULE 23 IN BANKRUPTCY CONTEXT

Both the securities fraud claimants and the SPDA claimants argue that Rule 23 of the Federal Rules of Civil Procedure, made applicable to bankruptcy cases by Bankruptcy Rule 7023, authorizes the filing of class proofs of claim.

It has been recognized that class action procedures may be appropriate for dealing with multiple claims that have been properly filed, provided that the requirements of F.R.C.P. 23 can be met by the party seeking class certification. See, In re REA Express, Inc. 10 B.R. 812 (Bankr.S.D.N.Y. 1981) ("No additional administrative difficulties would be occasioned by the use of class action in this case. All interested parties have already filed their claims . . . on an individual basis. The extent of the class is thus fixed and its members are known." Id. at 815); In re W.T. Grant Co., 24 B.R. 421 (Bankr.S.D.N.Y.1982) (Contested matter involving former employee claimants "merits the application of Rule 723," but class lacks numerosity and certification is denied. Id. at 424, 426).

We have not found, however, any persuasive authority that would allow, under the guise of "class claims," those claims filed on behalf of individuals who failed to file their own claims. The weight of authority, in fact, is to the contrary. In In re Society of the Divine Savior, 15 F.R.Serv.2d (Callaghan) 294 (E.D.Wisc. 1971), the Court denied the class certification motion filed on behalf of 1100 similarly situated creditors and held that each creditor had to file a claim in order to share in any distribution. That holding has been followed in In re Shulman Transport Enterprises, Inc., 21 B.R. 548 (Bankr.S.D.N. Y.1982), aff'd 33 B.R. 383 (S.D.N.Y.1983), on the basis that class proofs of claim "would circumvent the stringent requirement that every creditor file his proof of claim in order to participate," id. at 551, and in In re Grocerland Cooperative, Inc., 32 B.R. 427 (Bankr.N.D.Ill.1983), where the Court found "that only those claimants who file timely proofs of claims should be allowed to participate in any class action." Id. at 436.

Because the claimants here are not seeking class certification for a number of individually filed claims, we do not reach the question of whether the requirements of Rule 23 (numerosity, commonality, adequacy of representation) are met.

Furthermore, claimants' procedural arguments based on Rule 23 are not persuasive. Bankruptcy Rule 7023 states: "Rule 23 F.R.C.P. applies in adversary proceedings." The filing of a proof of claim, however, does not constitute an adversary proceeding, and thus Rule 7023 can have no applicability on that basis. See, In re Standard Metals Corp., 48 B.R. 778, 783 (D.Colo.1985).

The Debtors, by filing objections to the proofs of claim here, created a contested matter (See, Bankruptcy Rule 9014).

Bankruptcy Rule 9014 provides that the Court may, at any stage in a contested matter, direct that one or more of the Bankruptcy Rules in Part VII (which includes Rule 7023) shall apply. (Emphasis supplied.) We do not believe, and have found no authority for, the proposition that by triggering a contested matter, the Debtors' objections to claims can serve to retroactively legitimize an otherwise unauthorized proof of claim.

The Advisory Committee Notes to Rule 914, the predecessor to Rule 9014,...