FI L ED U.S. COURT OF APPEAL S EL EVENTH CI RCUI T NOVEMB ER 22, 2011 J OHN L EY CL ERK [DO NOT PUBLISH]

IN THE UN ITED STATES COURT OF APPEALS

FOR THE ELE VENTH CIRCUIT

__ __ __ __ __ __ __ __ __ __ __ __ No. 1 0- 15 62 7 Non -Arg um en t Ca le nd ar

__ __ __ __ __ __ __ __ __ __ __ __ D.C. Dock et No. 8 :1 0- cv -0 13 94 -J SM BKCY No . 8: 07 -b k- 04 39 4- KRM

IN RE: J .H. INVESTMENT SERVICES, INC.,

Deb to r.

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ UNITED STAT ES OF AMERIC A,

Pl ai nt iff -Ap pe ll an t,

ve rs us
STEVEN OSCHER, Chap te r 11 Trus te e,

Defen da nt -Ap pe ll ee.

__ __ __ __ __ __ __ __ __ __ __ __ App eal fro m

th e Uni te d S ta te s Di st ric t Co ur t fo r th e Mi dd le Dis tri ct of F lo rid a

__ __ __ __ __ __ __ __ __ __ __ __ (No ve m be r 22 , 20 11 )

Befo re BARKETT, MARCUS an d C OX, Circ ui t J ud ge s.

PER CURI AM:Dan ie l Prewe tt op erat ed J.H. In ve st m en t Serv ic es , I n c

. ( “ JHIS ”), whi ch

en ga ge d in a frau du le nt real es ta te in ve st m en t sc he m e. W he n th e sc he m e wen t so ut h,

JHIS ’s cred it or s i n i t i a te d an in vo lu nt ary Ch ap te r 11 cas e. The ba nk ru pt cy co ur t

ap po in te d St ev en Osc he r as Trus te e. Osc he r su bs eq ue nt ly lo cat ed an d so ld fo rty real

pr op ert ie s be lo ng in g to JHIS

. The ba nk ru pt cy co ur t or de red th at on e pe rcen t of the

sa le pr oc eed s (th e “ carv e-o ut fu nd ”) be se t as id e fo r JHIS ’s un se cu red cred it or s. Thi s

fu nd to ta le d a bo ut $8 3,0 00

.
The IRS ha s a cl ai m ag ai ns t JHIS fo r un pa id ta xe s. Si nc e th is cas e be ga n, th e

IRS ha s su bm it te d se ve ral pr oo f-o f-cl ai m fo rm s, each su pe rs ed in g th e pr ev io us on e.

Cl ai m #6 -1 as se rte d a $4 6 m il li on un se cu red cl ai m , wit h ap pr ox im at el y $2 6 m il li on

de si gn at ed as pr io rit y . C la im #6 -2 ass ert ed a si m il ar cl ai m , b ut Cl ai m #6 -3 ad de d a

se cu red cl ai m of $7 64

. Osc he r ob jecte d to Cl ai m #6 -3 on va rio us gr ou nd s. The IRS

th en su bm it te d th e cl ai m at is su e he re, Cl ai m #6 -4 , whi ch cat eg or iz es th e IRS’s en ti re

$4 6 m il li on cl ai m as se cu red

. (Dk t. 1

- 6

. ) C l ai m #6 -4 do es no t no te a ge ne ral

un se cu red cla im

or a n u ns ecu red pri or it y

cla im

.

In Decem be r 20 09 , Osc he r pr op ose d a Ch ap te r 11 li qu id at in g pl an (th e “ Pl an ”).
( Dkt

. 61 8.) The Pl an ex pr es sl y ex cl ud es th e carv e-o ut fu nd fro m th e I R S ’s

di st rib ut io n. Tha t sa m e m on th
, Osc he r fil ed a di sc lo su re st at em en t in di cat in g th at th e

es ta te ’s ass et s h ad a va lu e o f ab ou t $ 75 0,0 00 . (Ban kr . Ct. Dk t. 6 19 at 2 5.)

2Two m on th s la te r, an d on ly a week be fo re th e co nf irma t i o n h eari ng , t he IRS

ob jecte d to th e Pl an

. (Dk t. 1- 8.) The IRS c o n te nd ed th at Cl ai m #6 -4 as se rte d an

un se cu red cl ai m , th at th e cl ai m was al lo w e d un de r § 50 2, an d th at th e cl ai m was

en ti tl ed to pr io rit y un de r § 50 7( a)(8 ). Thu s, th e I R S a r gu ed
, th e Pl an vi ol at ed

11 U.S.C. § 11 29 (a)( 9) (C) be cau se it pa id th e carv e-o ut fu nd to JH I S ’s g e n eral

un se cu red cred it or s be fo re pa y in g th e IRS’s pr io rit y cl ai m in fu ll

. Osc he r co un te red

th at Cl ai m #6 -4 di d no t as se rt an un se cu red cl ai m , an d th us , th e IRS di d no t ha ve on e,

ei th er pr io rit y or ge ne ral

. The ba nk ru pt cy co ur t ag reed wit h Osc he r an d or de red th e

carv e-o ut fun d d is tri bu te d t o J HIS’s ge ne ral un se cu red cred it or s.

The IRS ap pe al ed to th e di st ric t co ur t, whi ch affi rme d t h e b a nk ru pt cy co ur t.
( Dkt

. 35 .) The di st ric t co ur t co nc lu de d th at un de rs ecu red cred it or s m us t pr ov id e

no ti ce of th ei r in te nt to pu rs ue a de fic ie nc y cl ai m

. Thi s no ti ce al ert s th e Trus te e an d

ot he r in te res te d pa rti es “ th at m or e th a n a se cu red cl ai m m ay be fo rth co m in g” an d
gi ve s th em an op po rtu ni ty to op po se th at cl ai m

. ( Id

. at 7.) Bu t in th is cas e, Cl ai m #6

-

4 di d no t in di cat e an in te nt to pu rs ue an un se cu red cl ai m

. Osc he r an d th e ot he r

cred it or s ha d ne it he r no ti ce of th e IRS’s un se cu r e d c l a i m no r an op po rtu ni ty to

op po se it

. Thu s, th e co ur t co nc lu de d, pe rm it ti ng th e IRS to co ll ect on a cl ai m whi ch

no pa rty had th e o pp or tu ni ty to co nt es t wo ul d v io la te du e p ro ces s. ( Id

. at 9 .)

3DISCUSS IO N

Und er th e Ban kr up tc y Co de (th e “ Co de ”), a cl ai m i s a rig ht to pa y m en t,

whe th er secu red or un se cu red

. Se e 11 U.S.C. § 10 1( 5) (A). So m e se cu red cred it or s

are un de rs ecu red

—i .e., th e va lu e of th ei r co ll at eral is le ss th an th e fu ll va lu e of th ei r

cl ai m

. 11 U.S.C. § 50 6( a)(1 ). The Co de tre at s th es e cred it or s as ho ld in g bo th a

se cu red an d a n u ns ecu red cla im

. Se e id

. Sect io n 5 06 (a)( 1) pro vi de s:

An al lo wed cl ai m of a cred it or se cu red by a li en on pr op er t y i n w h ic h th e es ta te ha s an in te res t,

. . . is a se cu red cl ai m to th e ex te nt of th e va lu e of su ch cred it or ’s in te res t in th e es ta te ’s in te re st in su ch pr op ert y , . . . a n d i s a n u n s ecu red cl ai m to th e ex te nt th at th e va lu e of

su ch cred it or ’s in te res t

. . . is le ss th an th e am ou nt of su ch al lo wed cl ai m

.
Id

. ; se e Offi ci al Ban kr up tc y Fo rm 10 at 2. The un se cu red po rti on of an un de rs ecu red

cl ai m is cal le d a de fic ie nc y

cla im

.

In th is cas e, it is un di sp ut ed th at th e IRS su bm it te d Cl ai m #6 -4 an d th at it was

un de rs ecu red

. Bu t th e pa r t i es di sp ut e whe th er Cl ai m #6 -4 pr op erl y rai se d or

pr es erv ed th e IRS’s un se cu red cl ai m

. The IRS co nt en ds th at § 50 6( a)(1 )

au to m at ic al ly bi fu rcat ed Cl ai m #6 -4 in to a se cu red an d an un se cu red cl ai m an d th at

th e un se cu red cl ai m was al lo wed un de r § 50 2. Sect io n 50 6( a)(1 ) al so pu t Osc he r an d

th e ot he r cred it or s on no ti ce th at th e I R S w o u l d pu rs ue it s de fic ie nc y cl ai m

. Thu s,

th e IRS arg ue s, th e di s t r i c t co ur t’s co nc ern s ab ou t du e pr oc es s are m is pl aced

.

4Add it io na ll y , t h e IRS co nt en ds th at ev en if it ha d to no te it s un se cu red cl ai m on

Cl ai m #6 -4 , it s m is ta ke in fai li ng to do so sh ou ld be ex cu se d a s h arm le ss . It clai m s

th at Osc he r an d th e ot he r cred it or s le arn ed it wou ld pu rs ue a de fic ie nc y cl ai m whe n

th e IRS ob

jecte d to th e Pl an

. Bec au se no on e ob jecte d to t h e v a l i di ty of th e IRS’s

un se cu red cl ai m at th at ti m e, th e cl a i m sh ou ld be al lo wed

. W e reject th e IRS’s

arg um en ts

.
Und er th e Co de
, a cred it or m us t ta ke an affi rm at iv e st ep to pu rs ue an un se cu red

cl ai m

. No cred it or

—ev en an un de rs ecu red cred it or —i s req ui red to pu rs ue a cl ai m in

ba nk ru pt cy or fil e a pr oo f -o f-cl ai m fo rm

. 11 U

. S

. C

. § 50 1 (s ta ti ng “ [a]

cred it or

. . . may fil e a pr oo f of cl ai m ”) (em ph as is ad de d)

. The Co de m erel y pr ev en ts

no nf il in g c r e di to rs fro m rece iv in g di st rib ut io ns fro m th e de bt or ’s es ta te

. Se e, e.g

. ,

11 U.S.C. § 52 4( a); In re Th oma s , 88 3 F.2 d 99 1, 99 6 (1 1t h Ci r. 19 89 ). The Fed eral

Ru le s of Ban kr up tc y Pro ced ur e (“ Ru le s” ) fu rth er un de rs co re th is po in t. Se e Fed

. R.

B a n k r

. P. 30 02 (a) (s ta ti ng th at an un se cu red cred it or “ m us t fil e a pr oo f o f

cl ai m

. . . fo r th e cl ai m

. . . to be al lo wed .”); Fed

. R. Ban kr

. P. 30 03 (c)( 2) (s ta ti ng th at

“ an y cred it or who fai ls to [fi le a pr oo f of cl ai m ] sh al l no t be tre at ed as a cred it or wit h

res pe c t to su ch cl ai m fo r pu rp os es of vo ti ng an d di st rib ut io n.” ). To pu rs ue an

un se cu red cl ai m un de r th e Co de
, a cred it or ne ed on ly fil l ou t an d fil e a on e pa ge fo rm

.

5Se e Offi ci al B a n kr

. Fo rm 10

. Bu t fil in g th is fo rm is an affi rm at iv e st ep , an d th e

de ci si on to tak e th at st ep res ts sq ua rel y on th e cre di to r’s sh ou ld ers

.
Co nt rary t o th e IRS’s co nt en ti on , § 50 6( a)(1 ) do es no t au to m at ic al ly as se rt a

de fic ie nc y cl ai m

. An un de rs ecu red cred it or is no t req ui red to pu rs ue a de fic ie nc y

cl ai m

. In fact
, th e R u l e s a nd Offi ci al Ban kr up tc y Fo rm s su gg es t th at whe n an

un de rs ecu red cred it or do es no t n ot e an un se cu red cl ai m on it s pro of of cl ai m , it ha s

de ci de d no t to pu rs ue th at cl ai m

. Und er Ru le 30 01 , a pr oo f of cl ai m m us t “ co nf or m

su bs ta nt ia ll y to th e ap pr op ria te Offi ci al Fo rm .” Fed

. R. Ban kr

. P. 3 0 0 1( a). The

rel ev an t p ro of

of c la im for m is Offi ci al Ban kr up tc y Fo rm 10 (“ Fo rm

10 ”). Fo rm

10

pe rm it s a cred it o r t o no te a se cu red cl ai m an d th e am ou nt of th at se cu red cl ai m

.

H o w ev er, in th e sa m e bo x an d rig ht ne xt to th e li ne fo r th e am ou nt of th e se cu red

cl ai m , Fo rm 10 as ks fo r th e am ou nt of th e cl ai m whi ch is un se cu red

. Offi ci al Ban kr

. 1

F o r m 1 0 , Bo x 4. Mo reo ve r, th e in st ru ct io ns to Fo rm 10 cl earl y ex pl ai n th a t a n

un de rs ecu red cred it or sh ou ld no te bo th th e se cu red an d un se cu red va lu e of it s cl ai m

.
Offi ci al Ban kr

. Fo rm 10 at 2 ( “ The am ou nt of th e se cu red cl ai m can no t ex ceed th e

va lu e of th e pr op ert y

. Any am ou nt owe d to th e cred it or in ex ces s of th e va lu e of th e

pr op ert y is an un se cu red cl ai m .”). Thu s, to su bs ta nt ia ll y co m pl y wit h Fo rm 10 , a

Box 5 permits a cre ditor to note if any of its claims are entitled to priority under § 507 1 and the a mount of the claim entitled to priority . The I RS di d not indicate that any of its claim

was e ntitled to priority

or the a mount of that claim.

6cred it or sh ou ld no te th e po rti o n o f it s cl ai m it be li ev es is un se cu red

. W he n an

un de rs e c u r e d c red it or do es no t, th e Trus te e an d ot he r pa rti es can co nc lu de th at th e

cred it or ha s d eci de d n ot to pu rs ue it s d efi ci en cy cla im

. Req ui rin g an un de rs ecu red cred it or to si gn al it s i nt en t t o pu rs ue a de fic ie nc y

cl ai m se rv es an im

po rta nt no ti ce fu nc ti on

. Und er § 50 2, a pr oo f of cl ai m is al lo wed

“ un le ss a pa rty in in te res t

. . . ob jects .” 11 U.S.C. § 50 2( a). Bu t pa rti es do no t m ak e

ob jecti on s whe n th ey do no t h a v e t o

. A Fo rm 10 whi ch ev in ces an un de rs ecu red

cred it or ’s in te nt to pu rs ue a de fic ie nc y cl ai m pu ts th e in te res te d par ti es on no ti ce of

th at cl ai m , se e In re N

ep tu ne Poo l Se rv ., In c. , 1 44 B.R. 92 6, 92 7 (Ban kr . M .D. Fl a.

19 92 ), an d gi ve s th os e in te res te d pa rti es an op po rtu ni ty to ob ject to it
, Fed

. R. Ban kr

.
P. 30 07 . But whe n a Fo rm 10 do es no t ev in ce s uc h a n i nt en t, t he Trus te e an d o th er

cred it or s h av e n o re as on to ob ject.

The Co de do es no t fo rce cred it or s to pu rs ue de fic ie nc y cl ai m s. The m ot iv e fo r

a cred it or ’s de ci si on is irr el ev an t as far as th e Trus te e is co nc ern ed

. The Trus te e ha s

no du ty to as k th e un de rs ecu red cred it or why he el ect ed no t to p u r s u e a d e fic ie nc y

cl ai m

. Se e In re Pad ge t , 11 9 B.R. 79 3,7 98 (Ban kr

. D. Co

. 19 90 ) (“ [The

Trus te e] sh ou ld no t, an d is no t ch arg ed wit h th e ob li ga ti on to , ex am in e a cl ai m wit h

a pu rp os e an d vi ew to in crea si ng th e cl ai m or im pr ov in g a cl ai m an t’s st at us ov er th at

as se rte d b y

ot he r cre di to rs .”)

7W e fin d fu rth er su pp or t fo r ou r co nc lu si on in th e Hou se Rep or t whi ch

acco m pa ni ed th e ad op ti on of t he Co de . In d es cri bi ng § 5 01 , th e Rep or t s ay s:

Thi s se ct io n go ve rn s th e m ean s by whi ch cred it or s

. . . pr es en t t h e ir cl ai m s

. . . to th e co ur t.

. . . Thi s su bs ect io n is pe rm is si ve on ly, an d do es
no t req ui re fil in g of a p r o o f o f cl ai m by an y cred it or

. It pe rm it s fil in g whe re so m e pu rp os e wou ld be se rv ed
, su ch as whe re

. . . a cred it or wit h

a li en is un de rs ecu red an d as se rts a cl ai m fo r t h e ba la nc e of th e de bt

owe d hi m (h is unse cu red cl ai m , as de te rm in ed un de r pr op os ed 11 U.S.C. 50 6( a)).”

H.R. Rep

. No. 95 -5 95 , at 31 5, 19 78 U.S.C.C.A.N. 59 63 , 63 07 (1 97 8)

. Th e rep or t

go es on to say tha t:

In ge ne ral
, . . . un le ss a cl ai m is li st ed in a Ch ap te r 9 or Ch ap te r 11 cas e
an d al lo wed as a res ul t of th e li st , a pr oo f of cl ai m wil l be a pr ereq ui si te t o al lo wan ce fo r un se cu red cl ai m s, in cl ud in g pr io rit y cl ai m s an d t h e
un se cu red po rti on of a cla im ass ert ed by the ho ld er o f a l ie n.

Id

. It lo gi cal ly fo ll ows th at Co ng res s in te nd ed an un de rs ecu red cred it o r ’s pr oo f of

cl ai m to ad dr es s t ha t cr ed it or ’s un se cu red cla im

.
The IRS ha s c i t e d no cas es ho ld in g th at § 50 6( a)(1 ) au to m at ic al ly as se rts a

de fic ie nc y cl ai m

. I n f a c t, in th e cas es th e IRS ci te s, th e se cu red cred it or s 2

subs ta nti al ly co m

pl ie d wit h Fo rm 10 ’s req ui rem en ts by no ti ng th ei r un se cu red cl ai m s.

Se e, e.g

. , In re Row el l
, 42 1 B.R. 52 4, 52 8, 53 5 (Ban kr

. D. Mi nn

. 20 09 ); Demar ah v.

I t is unclear f

rom the fa ctual discussion in In re He alis , 49 B.R. 939, 940-42 ( Ba nkr. 2 M.D. Pa. 1985), whe ther the I RS not ed both a se cure d and unsec ured c laim. But, it is clear that the Healis court did not addre ss this specific issue.

8Uni te d St at es , 18 8 B.R. 42 6, 42 7- 29 (E.D. Cal

. 19 93 ). Add it io na ll y , an un de rs ecu red

cred it o r w h o i n it ia ll y fai ls to no te a de fic ie nc y cl ai m m ay se ek le av e to am en d it s

pr oo f of cl ai m

. In re S. Atl

. Fin

. Co rp

. , 76 7 F.2 d 81 4, 81 9 (1 1 t h C i r

. 1 9 8 5 ).

Am en dm en ts as se rti ng de fic ie nc y cl ai m s are am on g th os e us ua ll y al lo wed

. Se e, e.g

. ,

In re Ha ac k , 16 5 B .R. 50 1, 5 04 (Ban kr . M.D. Fla. 1 99 4)

.

Fo r th e ab ov e st at ed reas on s, we co nc lu de th e IRS di d no t as se rt an un se cu red

cl ai m on Cl ai m #6 -4

. On it s face
, Cl ai m #6 -4 in di cat ed th e IRS’s co ll at eral was wor th

th e fu ll va lu e o f it s cl ai m

. (Dk t. 1- 6.) Su rel y th e IRS ha d no reas on to be li ev e th at

JHIS ’s as se ts were wor th $4 6 m il li on

. Bu t ev en if it di d, th e IRS le arn ed th at it co ul d

no t rece iv e th e fu ll va lu e of it s se cu red cl ai m in D e cem be r 20 09 whe n Osc he r

rep or te d t ha t J HIS’s as se ts to ta le d no m or e th an $7 50 ,00 0. Aft er t ha t d at e, th e IRS

to ok no affi rm at iv e st ep to pr op erl y pr es en t it s un se cu red c la im to th e ba nk ru pt cy

co ur t as req ui red by the Co de an d t he Ru le s. 3

The IRS al so co nt en ds th at it s ob jec ti on to th e Pl an su ffi ci en tl y no ti fie d th e

ot he r pa rti es th at it wou ld pu rs ue it s de fic ie n c y c l a i m. Bu t th e IRS ob jecte d to th e

After the bankr uptcy court c oncluded that Claim #6-4 did not asser t an unsec ured 3 priority claim, the I RS filed Cl aim #6-5. (Dkt. 1- 15 at 2.) This cla im showed that the I RS had a

secur ed cla im worth $148,000, an unsec ured pr iority claim for a

pproxi mately

$26 milli on, and a g ener al unsec ured c laim for $20 million. ( Id. ) The I RS arg ued that Claim #6-5 prope rly amende d Claim #6-4 to assert its deficie ncy claim. ( Id. ) Osche r opposed the I RS say ing tha t Claim #6-5 was untimely . (Dkt. 1-17.) Unfortuna tely , the re cord doe s not contain the bankr uptcy court’s r esolution of this iss ue, and a t any rate , the I RS has not raised the disallowanc e of Claim #6-5 on appe al.

9Pl an be cau se it di d no t ad dr es s it s un se cu red pr io rit y cl ai m as req ui red by

11 U.S.C. § 11 29 (a)( 9) (C). (Dk t.1 08 at 1.) Tha t pr ov is io n as su mes t h e o b je ct in g

pa rty ha s an al lo wed un se cu red pr io rit y cl ai m

. Bu t be cau se Cl ai m # 6

- 4 d i d no t

pr op erl y as se rt an un se cu r e d c l a i m, th e IRS’s ob jecti on was in va li d. Se e Ru le

30 03 (c)( 2)

. The IRS al so arg ue s th at no on e ob jecte d to th e va li di ty of it s un se cu red 4

cl ai m

. Bu t, Osc he r an d th e ot he r cred it or s di d no t ha ve to be cau se no su ch cl ai m was

be fo re t he co ur t.

A s th e di st ric t co ur t no te d, di st rib ut in g th e carv e-o ut fu nd to th e IRS w o u l d

de pr iv e Osc he r an d J HIS’s ot he r cred it or s of du e pr oc es s as the y ha d nei th er no ti ce

of no r an op po rt u n it y to co nt es t an y un se cu red cl ai m by th e IRS. The refo re, th e
jud gm en t o f th e d is tri ct co ur t i s d ue to be affi rm ed

.
AFFIR MED.

The I RS arg ues, in its reply brief, tha t Rule 3018(d) per mits i t to vote as both a sec ured 4 and unsec ured c reditor. How ever , that rule a pplies only

to cre ditors “whose c laim has bee n allowed in par

t as a sec ured c laim and in part a s an unsec ured c laim.” Fe d. R. Bankr . P. 3018(d). Be cause we c onclude the I RS di d not have a n allowed unse cure d claim, Rule 3018(d) doe s not apply

.
10