Opinion
Case No. 03-39295-DOT.
October 30, 2006
M. Maxine Cholmondeley, Richmond, VA, Counsel to Debtors.
Billy R. Lacks Eraina K. Lacks, Midlothian, VA, Debtors.
Denis C. Englisby, Esq., Englisby, Englisby, Vaughn Englisby, Chesterfield, VA, Counsel for Movant.
Robert E. Hyman, Richmond, VA, Chapter 13 Trustee.
MEMORANDUM OPINION AND ORDER
Hearing was held on October 11, 2006, on the debtors' objection to Dorothy Lacks' motion to permit a late-filed proof of claim. For the reasons set forth below, the debtors' objection will be overruled, and the proof of claim will be allowed as an informal proof of claim. Movant's additional motion to dismiss the debtors' bankruptcy petition is denied. The court does not now address movant's objection to the modified plan, and that matter is continued until the next hearing date in this case.
Findings of Fact
Debtors filed a chapter 13 bankruptcy petition on October 1, 2003, shortly after movant had filed suit against debtors in the Circuit Court for the County of Chesterfield, Virginia. The debtors' petition included movant as a creditor. On November 3, 2003, movant filed an adversary proceeding, number 03-03417-DOT, in the bankruptcy case to determine the dischargeability of the unliquidated debt, and this complaint was amended on January 30, 2004. Trial was scheduled for August 3, 2004. The deadline for timely filing claims in the bankruptcy case was February 9, 2004.
The trial in the adversary proceeding was canceled on June 14, 2004, and the court allowed the parties to proceed to trial on a similar state court lawsuit in Chesterfield. Following a trial in Chesterfield, that court issued a judgment in favor of movant and against debtors on March 6, 2006. The state court awarded movant $48,000.00 in compensatory and $50,000.00 in punitive damages plus costs of $187.50. Counsel for movant sent a letter to the bankruptcy court on March 16, 2006, advising of the state court's judgment against debtors. This letter was docketed in the adversary proceeding on March 17, 2006, but no copy of the judgment order was docketed at that time, although counsel asserts that a copy of the order was attached to the letter. On April 27, 2006, the court requested that counsel for movant submit an order in the adversary case, but no order signed by counsel to debtors has been submitted to this date.
On August 9, 2006, the court held a hearing on debtors' proposed modification to their chapter 13 plan incorporating the possible payment of the judgment to movant. Movant objected to the modified plan. At this hearing, it came to the court's attention that movant had never filed a proof of claim, and the court advised her counsel to do so. On August 11, 2006, movant filed a proof of claim.
On August 11, 2006, counsel for movant also filed a motion, docketed as a "motion to allow late-filed proof of claim," but which contained no such motion in substance. Rather, the motion requested the court to dismiss the bankruptcy petition to allow movant's judgment to be collected outside of the bankruptcy court. Alternatively, the motion requested that the court sustain movant's objection to debtors' modified plan. Accompanying this motion were three exhibits: (1) a copy of the proof of claim filed on August 11, 2006, (2) a copy of the letter docketed on March 17, 2006, including a copy of the state court judgment order, and (3) a copy of a letter addressed to counsel for debtors to which was attached the order to be entered in the adversary proceeding. Neither the copy of the state court judgment order, the letter to counsel for debtors, nor the proposed order had previously been docketed in either the adversary proceeding or the bankruptcy case. In response to this motion, debtors filed an objection to the claim, stating that it was not timely filed because the deadline for filing claims was February 9, 2004.
Hearing was held on debtors' objection on October 11, 2006, and the parties were asked to submit additional authorities relating to the issue whether the court should allow the late-filed proof of claim.
Conclusions of Law
FORMAL PROOF OF CLAIM
The first issue is whether the filing of the formal proof of claim on August 11, 2006, suffices to meet the claim submission requirements of the Federal Rules of Bankruptcy Procedure, Rules 3001 and 3002. A claim is filed timely if filed not later than 90 days after the first date set for the meeting of creditors. Fed.R.Bankr.P. 3002(c). The meeting of creditors in this case was scheduled for November 10, 2003, so the applicable claim filing deadline was February 9, 2004. The formal proof of claim was filed on August 11, 2006, more than two years after the deadline, and it does not meet any of the exceptions in Rule 3002(c). Because the deadline was not met, the proof of claim must be disallowed unless it is allowable under an alternate theory.
INFORMAL PROOF OF CLAIM
In circumstances such as this where the formal claims bar date has not been met, courts have often recognized "informal proofs of claim." An informal proof of claim consists of a timely filed document having characteristics of a claim, followed by an untimely amendment that formalizes the proof of claim. See 9 COLLIER ON BANKRUPTCY § 3001.05[1] (15th revised ed. 2003). Amongst other filings, a complaint objecting to dischargeability or initiating an adversary proceeding has been held to be such an amendable informal proof of claim. In re Petrucci, 256 B.R. 704, 707 (Bankr. D.N.J. 2001); In re Sherret, 58 B.R. 750, 751 (Bankr. W.D. La. 1986). Where such a complaint is filed prior to the bar date, it is eligible for consideration as an informal proof of claim. See In re International Horizons, 751 F.2d 1213, 1217, 12 C.B.C.2d 91, 96 (11th Cir. 1985). In this case, counsel for movant filed a complaint in an adversary proceeding on November 3, 2003, and amended it on January 30, 2004. This complaint sought to determine the dischargeability of the unliquidated debt that could result from a judgment on the merits of movant's claim against debtors. This court permitted the issues to be litigated in the state court, and the case proceeded to judgment on March 6, 2006. The deadline for filing a timely proof of claim was February 9, 2004, thus the complaint as amended was filed prior to the deadline, and can be considered part of an informal proof of claim, if it contains the required elements.
The elements of an informal proof of claim are: 1) it must be in writing; 2) it must contain a demand by the creditor on the estate; 3) it must express an intent to hold the debtor liable for the debt; 4) it must be filed with the bankruptcy court; and 5) the facts of the case must make allowance equitable. 9 COLLIER ON BANKRUPTCY § 3001.05[2]; Nikoloutsos v. Nikoloutsos, 199 F.3d 233, 236 (5th Cir. 2000); Reliance Equities, Inc. v. Valley Fed. Sav. Loan Ass'n, 966 F.2d 1338, 1345 (10th Cir. 1992). In the present case, the complaint was filed in writing with the bankruptcy court, so the first and fourth elements are clearly met.
The fifth element requires a balancing of equities. As a matter of equity, allowance of the claim does no harm to the estate because the debtors modified their Chapter 13 plan to accommodate the claim after the judgment became final. The addition of this claim does not harm other creditors because they have already received all payments under the plan. If anything, it would be inequitable to allow the debtors to acknowledge the claim from the petition through their modified plan, only to disavow its existence once the lack of a formal proof of claim came to light. Thus, the equities favor allowance of the claim. The first, fourth and fifth elements of an informal proof of claim are met in this case.
The remaining two elements, whether the movant's complaint as amended "contains a demand by the creditor on the estate" and "expresses an intent to hold the debtor liable for the debt," 9 COLLIER ON BANKRUPTCY § 3001.05[2], merit further discussion. In the Eastern District of Virginia, a mere sentence referring to an adversary proceeding is not sufficient to establish an informal proof of claim related to that proceeding. In re Middle Plantation of Williamsburg, Inc., 48 B.R. 789, 795 (E.D.Va. 1985). Neither is mere knowledge of a claim sufficient to establish an informal proof of claim. However, the total facts in the record may be used as a basis for amendment. Id. at 796.
Although nowhere in the text of the amended complaint itself do any of the words "debt," "claim," "creditor," or "demand" appear, the attached motion for judgment in the Chesterfield Circuit Court does reference a claim: "the acts described above have damaged the plaintiff and have resulted in a compensatory claim in excess of $200,000.00 plus attorneys fee. . . ." The motion for judgment is incorporated by reference and can be considered a part of an informal claim. See In re Petrucci, 256 B.R. 704, 707.
The complaint to determine dischargeability under § 523(a) of the Code seemingly asks the court to render the entire bankruptcy petition non-dischargeable as a result of the debtor's alleged obtaining of money and property by false pretenses or fraud. It appears that counsel for movant believes the determination that a claim is non-dischargeable means the entire bankruptcy case is dismissed. The nature of the bankruptcy discharge is such that a non-dischargeable debt will survive the bankruptcy case, while the case may continue to completion and discharge all of the debtor's dischargeable debts. A complaint to determine dischargeability under § 523(a) should request only that the debt — that would result from a judgment in movant's favor — be determined non-dischargeable.
Reading the amended complaint in a light most equitable to the claimant, the complaint is sufficient when the entire record is taken into account. The complaint describes a monetary claim against the debtors, and it demonstrates intent that the debtors be held liable for alleged actions of fraud and false pretenses. It follows that a finding of liability must lead to a demand for payment of any resulting judgment. Debtors seemingly interpreted the motion for judgment as such when they included and listed the requested amount in their list of creditors upon filing. Thus, the context of the complaint and its intended purpose offers no alternative explanation. Therefore the amended complaint is sufficient to meet the final two elements of an informal proof of claim.
In order to be complete, the timely filed informal proof of claim must be amended. In re Petrucci, 256 B.R. 704, 707. The formal proof of claim filed on August 11, 2006, effectively amends the informal proof of claim — the amended complaint — and the combination constitutes a complete informal proof of claim.
Therefore, the proof of claim filed August 11, 2006, will be allowed as a proof of claim, and the debtors' objection to the proof of claim will be overruled.
Accordingly,
IT IS ORDERED that debtors' objection to the proof of claim is OVERRULED;
IT IS FURTHER ORDERED that the proof of claim filed August 11, 2006, is deemed a timely filed claim; and
IT IS FURTHER ORDERED that Dorothy Lacks' motion to dismiss the bankruptcy petition is DENIED.