Opinion
Case No. 01-13514-SSM
February 27, 2002
Robert B. Nealon, Esquire, Nealon Moran, LLP, Alexandria, VA, of Counsel for Intelligent Decisions, Inc.
Steven B. Ramsdell, Esquire, Tyler, Bartl, Burke Albert, PLC, Alexandria, VA, of Counsel for Debtor
MEMORANDUM OPINION AND ORDER
Before the court is a motion filed by Intelligent Decisions, Inc., on January 30, 2002, to allow the late filing of a proof of claim in the amount of $448,625.93. Because no notice of the motion was given to the chapter 7 trustee, the motion cannot be granted at the present time. Additionally, given the size of the claim and the substantial diluting effect it would have on distributions to creditors who filed timely proof of claims, the court would require an evidentiary hearing in any event on the critical question of whether the creditor had notice or actual knowledge of the case in time to file a timely proof of claim.
The original proof of claim was attached to the motion rather than being filed as a separate document, which almost certainly ensures that it would be overlooked when the clerk prepares the claims register. Original proofs of claim should always be filed as separate documents and not as attachments to some other pleading.
Background
Essam and Gehan Shanoudi filed a joint voluntary petition for chapter 7 bankruptcy relief in this court on September 4, 2001. Intelligent Decisions, Inc., was not included on the list of creditors filed by the debtors. On September 8, 2001, the listed creditors were mailed a notice advising them of the commencement of the case, the date of the meeting of creditors, and the bar dates for filing complaints objecting to the debtor's discharge or to determine the dischargeability of certain claims. The notice further stated, "Please Do Not File A Proof of Claim Unless You Receive A Notice To Do So."
H. Jason Gold was appointed and qualified as trustee. On October 5, 2001, he requested the clerk to give notice to creditors of a possible dividend and of the need to file proofs of claim. On October 12, 2001, the clerk mailed to all listed creditors a notice of need to file a proof of claim within 90 days. The bar date for filing proofs of claim was thus January 10, 2002.
On November 30, 2001, the debtors filed amended schedules that for the first time listed Intelligent Decisions, Inc. as a creditor. On that same date, counsel for the debtors mailed to Intelligent and its attorney a "notice to added creditors" to which was attached, among other documents, the notice of need to file proof of claim . By this time, Intelligent was already aware of the bankruptcy filing, since it had received on November 27, 2001, a suggestion of bankruptcy after it filed suit against Essam Shanoudi in state court. Intelligent promptly filed a motion to extend the time for filing a complaint objecting to the debtor's discharge. In that motion, Intelligent's counsel represented that he had "retrieved and inspected" the bankruptcy case file after receiving the suggestion of bankruptcy. The notice of need to file a proof of claim was of course in the file.
Four timely unsecured proofs of claim have been filed totaling $843,493.06. For whatever reason, Intelligent did not file a proof of claim by the January 10, 2002, bar date. The present motion, which was filed on January 30, 2002, alleges that Intelligent was not sent a copy of the notice of need to file proof of claim on October 12, 2001; that Intelligent has been prejudiced "since all other creditors have had approximately three months to prepare and gather documents and attachments necessary for their Proof of Claim form;" and that no party would be prejudiced by allowing the late filing of the proof of claim.
The only document attached to the proof of claim is a promissory note signed by Essam Shanoudi. But Intelligent had already filed suit against Mr. Shanoudi in state court on November 2, 2001, "for default on a Promissory Note executed by Debtor on April 2, 2000 . . . in the amount of . . . $438,345.00." Thus Intelligent already had the only document it needed to file a proof of claim.
Discussion
The fundamental procedural problem is that the present motion, while it was served on the creditor body generally, was not served on the chapter 7 trustee, H. Jason Gold. It was served on the United States Trustee, but the United States Trustee is not an officer of the bankruptcy estate and merely reviews the accounts of the panel trustees. Since it is the chapter 7 trustee who is responsible for protecting the interests of the bankruptcy estate, any motion to allow the late filing of a proof of claim must be served on him.
The second and more serious issue is whether Intelligent can satisfy the requirement of § 726(a)(2)(C), Bankruptcy Code, for the payment of a late-filed claim. Under the chapter 7 distribution scheme, the trustee first pays allowed priority claims, regardless of whether those were timely filed or tardily filed (so long as they were filed before the date on which the trustee actually commences distribution). § 726(a) (1), Bankruptcy Code. Then the trustee pays as a class timely filed general unsecured claims and those tardily filed claims where the creditor "did not have notice or actual knowledge of the case in time for timely filing of a proof of claim," and the proof of claim "is filed in time to permit payment of such claim." § 726(a)(2), Bankruptcy Code. Next (assuming there are any funds left), the trustee pays the remaining tardily filed claims. § 726(a)(4), Bankruptcy Code. If there are any further funds, they are applied first to fines, penalties, and punitive damages, then to pay interest on allowed claims, and finally, if there is anything left, the surplus goes to the debtor. §§ 726(a)(5) through (a)(6), Bankruptcy Code.
Here, it is difficult to see how the creditor did not have "actual knowledge of the case" in time to file a proof of claim. Intelligent's lawyer learned of the case on November 27, 2001, some six weeks prior to the claims bar date. Not only was he thereafter mailed a copy of the notice of need to file a proof of claim, but he personally inspected the case file and should have been aware of the claims bar date. Given that suit on the claim was already pending in state court, it is difficult to see how Intelligent could have needed more than a couple of days, let alone six weeks, to prepare the proof of claim, which is a very simple document.
Finally, it is difficult to see how paying Intelligent's late-filed claim under § 726(a)(2)(C) together with the timely filed claims would not prejudice the four unsecured creditors who did file timely proofs of claim. Intelligent's claim is fully 51% of the timely filed claims and would clearly have a substantial diluting effect on the distribution to unsecured creditors in the (likely) event there are not sufficient funds to pay all timely filed claims.
A creditor does not need leave of court to file a late proof of claim. If there are sufficient funds, the trustee simply pays late-filed claims after paying timely filed claims. If, however, the creditor is seeking a ruling that its late-filed claim qualifies under § 726(a)(2)(C) for payment with timely filed claims, the motion must be served on the chapter 7 trustee and should be noticed for an evidentiary hearing.
It is, accordingly,
ORDERED:
1. The motion to permit filing of proof of claim is denied to the extent it seeks a ruling that the claim may be paid by the trustee pro-rata with allowed timely filed claims. This ruling is without prejudice to renewal of the motion after proper service on the chapter 7 trustee. This is not an order disallowing the claim, which, unless objected to, may be paid by the trustee under § 726(a)(3) as a tardily filed claim.
2. The clerk will mail a copy of this order to the parties listed below.