Opinion ID: 564840
Heading Depth: 1
Heading Rank: 1

Heading: proof of claim requirement

Text: 6 Fernstrom's first argument on appeal is that IBM's failure to file a timely proof of claim against Fernstrom for the amount at issue in the subrogation action bars the computer maker from pursuing its claim against Fernstrom. IBM responds that since it only seeks to recover from Fernstrom's insurers, it was not required to file a proof of claim in Fernstrom's bankruptcy proceeding. 7 Section 501(a) of the bankruptcy code allows, but does not require, creditors of the bankruptcy estate to file proofs of claim. 11 U.S.C. Sec. 501(a). Under Code Sec. 502, however, only a claim or interest, proof of which is filed under section 501, may be deemed an allowed claim that entitles the party asserting the claim to share in the distribution of assets from the bankruptcy estate. 11 U.S.C. Sec. 502(a). See, e.g., In re Thomson McKinnon Securities, 125 B.R. 88, 92 (Bankr.S.D.N.Y.1991); In re NutriBevco, 117 B.R. 771, 778 (Bankr.S.D.N.Y.1990); In re Stamford Color Photo, 105 B.R. 204, 206 (Bankr.D.Conn.1989); In re Butterworth, 50 B.R. 320, 322 (Bankr.W.D.Mich.1984). In this case, it is undisputed that IBM failed to file a proof of claim within the time limits set by the bankruptcy court. See R.Bankr.Pro. 3002(c). 8 We agree with the bankruptcy and district courts that IBM's failure to file a claim should not bar it from recovering against Fernstrom's insurers. We find support for this conclusion in the Eleventh Circuit's decision in In re Jet Florida Systems, 883 F.2d 970 (11th Cir.1989). In Jet Florida, the debtor was sued by a former employee, Owaski, who had been fired because of his alleged involvement in the sabotage of a Jet Florida airplane. Owaski sued in state court, claiming that Jet Florida had defamed him. When Jet Florida subsequently sought protection from its creditors under Chapter 11, Owaski filed a proof of claim with respect to unpaid wages and benefits [but] he filed no proof of claim pertaining to his defamation action. 883 F.2d at 972. Owaski agreed to limit his recovery to what he could obtain from Jet Florida's liability insurer. Id. The district court held that Owaski could proceed with his defamation action against Jet Florida to establish the debtor's liability in order to recover from the debtor's insurer, id. at 973, reasoning that allowing the suit to proceed would in no way hamper the debtor. Id. The Eleventh Circuit agreed, and adopted the district court's opinion as its own. 9 Another case that supports the conclusion that the failure to file a proof of claim does not preclude an action against the debtor to establish liability that will be satisfied by a third party is In re Turner, 55 B.R. 498 (Bankr.N.D.Ohio 1985). In Turner the debtor was a loan officer who had been fired from his job with a bank after he approved several loans that went bad under suspicious circumstances. The bank filed a civil RICO action against Turner and others, seeking to recover the amounts it lost on the bad loans. Turner had previously filed a petition in bankruptcy, but the bank failed to file[ ] any proofs of claim for the alleged RICO violations of the debtor.... 55 B.R. at 500. The Bank stipulated that it would not seek to collect damages from Turner, but argued that it needed to obtain a finding of liability against Turner before it could be compensated by a surety which had sold the bank a fidelity bond to cover losses caused by embezzling employees. 55 B.R. at 502. The bankruptcy court was persuaded that allowing the case to go forward despite the bank's failure to file a proof of claim would not harm the estate or prejudice other participants in Turner's bankruptcy proceeding. 10 The precise legal issue in Jet Florida was whether further proceedings in Owaski's defamation suit violated the post-discharge injunction against the continuation of pre-petition legal proceedings provided for in Bankruptcy Code Sec. 524(a)(3). In Turner the issue was whether the suit against the debtor could go forward despite the automatic stay of proceedings provided in Code Sec. 362(a) (an issue also raised in this case and discussed below). We believe, however, that the reasoning in both cases defeats Fernstrom's argument that a creditor's failure to file a proof of claim bars a subsequent action against the debtor in which all the plaintiff seeks is a declaration of liability. 11 The purpose of the proof of claim is to alert the court, trustee, and other creditors, as well as the debtor, to claims against the estate. In re Daystar of California, 122 B.R. 406, 408 (Bankr.C.D.Cal.1990); In re Stern, 70 B.R. 472, 476 (Bankr.E.D.Pa.1987). By providing creditors with a limited time period in which to assert their claims, the Bankruptcy Code and Rules enable the various participants in a bankruptcy proceeding to determine the amount and nature of claims against the estate, information essential to the distribution of the estate's assets or the formulation of an equitable plan of reorganization. As in Turner and Jet Florida, in this case the creditor holding the claim for which no proof was filed has agreed that all it will seek from the debtor is a determination of liability. This determination will neither deplete the debtor's assets or otherwise interfere with the administration of the bankruptcy proceeding, nor hinder the debtor's fresh start at the close of the proceeding. Rather, it will operate only as a prerequisite to recovery against another entity. In Re Walker, 927 F.2d 1138, 1142 (10th Cir.1991). In such a situation, the notice function served by the rule that only proven claims will be allowed to share in the distribution is not frustrated by allowing a creditor that has not filed a proof of claim to proceed against the debtor.