RECENT CHAPTER 11 BANKRUPTCY OPINIONS (2014)

Issue: Whether the bankruptcy court abused its discretion in denying the claimant's motion, brought under rule 9014, to make the class action rules applicable to the claimants' class proof of claim.

Holding: The Court affirmed the decision of the bankruptcy court in part and reversed in part. The Court first noted that "[t]he Bankruptcy Rules addressing proofs of claim are silent about whether creditors, who wish to represent a class of similarly situated unnamed claimants, can file class proofs of claim." The trustee argued that "proofs of claim may only be filed by creditors or authorized agents of creditors and therefore may not be filed on behalf of other unnamed creditors in the form of a class proof of claim. In the absence of a class having been certified before the bankruptcy petition was filed, the four Named Claimants could not, the Trustee argues, assert that they were 'authorized agents' for the unnamed claimants with authority under Rule 3001 to file class proofs of claim for the unnamed claimants. Second, the Trustee asserts that a Rule 9014 motion must be filed before a class proof of claim is filed in order to authorize the filing of class claims by a representative agent." The Court disagreed with the trustee, finding that the trustee's strict reading of the bankruptcy rules "would likely preclude virtually all class actions in bankruptcy cases." The Court found that when the named claimants had filed their class proof of claim they "proposed to represent a class in class proofs of claim, and the allegations they made to justify the class claim could only have been conditional, as any class process was subject to their demonstrating justification and the court's approval. Pending approval, therefore, the Named Claimants were putative agents of the similarly situated unnamed claimants. Just like a Civil Rule 23 class action, the proposed class representation in bankruptcy is putative, subject to court approval, and thus anticipates a retrospective application of the approval, if given." In short, the court found that Rule 3001 should be read to allow class proofs of claim (filed by putative agents), at least on a tentative basis, until the court either approves or rejects the class action process. Having found that class proofs of claim could be filed by putative agents such as the named claimants here without first obtaining an order under Rule 9014, the court reversed the bankruptcy court on that issue. The Court then addressed whether the claimants' Rule 9014 motion, having been filed more than year after the bar date for filing proofs of claim, was untimely. The Court reversed the decision of the bankruptcy court on this issue as well, finding that the claimants' motion was not untimely. The court stated: "Rule 9014 applies only to 'contested matters' and, as already noted, a 'contested matter' does not arise from a proof of claim until an objection to the claim has been interposed. In this case, the objection to the proofs of claim as class proofs of claim was not filed until February 2010, and shortly thereafter, the Named Claimants filed their Rule 9014 motion." Next, the Court addressed whether the bankruptcy court abused its discretion in ruling against the claimants on the merits of their Rule 9014 motion. The claimants argued, almost exclusively, that the bankruptcy had erred in reaching its decision without first granting the claimants' request for discovery and by not allowing any evidence on the Rule 23 factors. The Court first noted that bankruptcy courts are given broad discretion under Rule 9014 to determine whether any of the adversary rules (including rule 7023) should apply to any given contested matter. The Court then found that the bankruptcy court had not abused its discretion here. The Court stated: "Civil Rule 23 factors do

©2014 William L. Norton III