MEMORANDUM DECISION REGARDING OBJECTIONS TO CLAIMS
JUDITH A. BOULDEN, Bankruptcy Judge.
The Debtors in these claims objections proceedings (collectively the "Debtors") ask the Court to establish a bright line test to disallow unsecured claims because of a creditor's failure to attach to the claim the writing upon which the claim is based. The Debtors' do not object to the claims because they assert the amounts are not owed; instead they argue that the documentation attached to the claims, if any, does not fulfill the requirements of Fed. R. Bankr.P. 3001(c) and therefore the claims should be disallowed. Because of the basis upon which the Debtors' object to the claims, this Court is not able to rule on the actual allowance or disallowance of the claims, and the Debtors' attorney has admitted that such a determination may be premature. Instead, the Debtors' objections lead the Court's analysis into the realm of burdens of proof and
For ease of understanding the context of each objection, the undisputed evidence received consisting of the information listed in the Debtors' schedules and the creditors' claims are set forth in table form below. In the Cluffs' case, all of the claims were originally listed as undisputed, liquidated, and non-contingent, but subsequently amended to disputed after the objecting parties pointed out that fact in their briefs. In the Medina case, all claims remain listed as undisputed, liquidated, and non-contingent.
----------------------------------------------------------------------------------------------------------------James and Kathleen Cluff — 03—32779 (the "Cluffs") ----------------------------------------------------------------------------------------------------------------Amount, Account No. Creditor as Claim and Creditor Claim Listed in Amount and Listed in Documentation No. Claim Account No. 1 Schedules Attached ---------------------------------------------------------------------------------------------------------------- 5 Discover $7,940.97 $7,940.00 undisputed 11/20/03 statement Financial 62905 62905 summary which Services (Discover) includes name, (Amended 5/24/04 account number and $7940.97 & amount of debts disputed) ---------------------------------------------------------------------------------------------------------------- 6 Dillard National $ 2,907.30 $3,007 undisputed 7/03 billing statement Bank 78373 78373 which includes name, (Dillards) account number, (Amended 5/24/04 finance charge, due $2,907.30 & date, total amount of disputed) debt, and amount of scheduled payment ---------------------------------------------------------------------------------------------------------------- 9 American $9,202.57 $8,950.00 undisputed Account summary listing Express Travel 92004 92004 balance from Related (American Express) 6/03-11/03. The document (Amended 5/24/04 includes name, $9,202.57 account number, collection & disputed) status and amount due. ---------------------------------------------------------------------------------------------------------------- 10 Met Life Auto $2,975.24 $2,975.00 undisputed Debtors' Chapter 13 & Home (Met Life Auto & plan dated 11/21/03 Home) (Amended 5/24/04 $2,975.24 & disputed) ---------------------------------------------------------------------------------------------------------------- 12 Citibank USA, as $2,219.06 $2,231.00 undisputed 12/15/03 account statement issuer/service 502127 502127 including name, provider or purchaser (Sears Payment account number, of acct. Center) (Amended amount and date the from Sears, 5/24/04 $2,219.06 & account was opened.Roebuck and Co. disputed) and/or Sears National Bank ---------------------------------------------------------------------------------------------------------------- 13 Nordstrom FSB $3,779.60 $3,770.00 undisputed Charge-off Account 2419 2419 Detail which includes (Nordstrom Bank) name, account number, (Amended 5/24/04 amount, and a $3,779 & disputed) note that case was converted ---------------------------------------------------------------------------------------------------------------- 16 Fleet Bank (RI) $8,721.78 $8,000 undisputed Account summary N.A. and its 9976 9976 which includes name, assigns by (Fleet Credit account number, eCAST Card) amount, previous balance, Settlement (Amended 5/24/04 annual percentage Corporation, as $8,721.78 & rate and a letter its agent disputed) authorizing eCAST Settlement to file proof of claim and transferring account to eCAST ---------------------------------------------------------------------------------------------------------------- 17 IHC/ARC $ 382.25 $400 undisputed Account summary— 0942 1679 (Medical: itemized, debtor's social various accounts) security number, (Amended 5/24/04 and listing accounts $382.25 & disputed) 0942, 1679 and 2662 ---------------------------------------------------------------------------------------------------------------- 18 Discover $10,322.54 $10,091.00 7/03 account summary Financial 1359 undisputed —not itemized— Services 1359 lists name, account (Discover) number, amount, (Amended 5/24/04 finance charge for $10,322.54 & billing period & disputed) penalty for late payment & power of attorney appointing Discover Financial Services, Inc. ---------------------------------------------------------------------------------------------------------------- 20 Capital One $ 930.45 $997.00 undisputed Account summary for F.S.B. 9280 9280 proof of claim which (Capital One) includes name, (Amended 5/24/04 account number, $930.45 & disputed) amount & statement that principal, interest & fees are pre-petition totals. ---------------------------------------------------------------------------------------------------------------- 23 eCast Settlement $ 5,875.90 Not scheduled as None Corp.— 9111 unsecured. Retail Merchant: Services listed as Bernina secured creditor secured by sewing machine. $5,807.00, undisputed and to be reaffirmed 9111 (Amended 5/24/04 Retail Services (Bernina) $5,875.90 & disputed) ================================================================================================================
Tomas Medina—03-39152 (Medina) ----------------------------------------------------------------------------------------------------------------Amount, Account No. Creditor as Claim and Creditor Claim Listed in Amount and Listed in Documentation No. Claim Account No. Schedules Attached ---------------------------------------------------------------------------------------------------------------- 2 Meier & $ 951.12 $909.00 12/10/03 account Frank 4938353 4938353 statement which (Meier & Frank) includes name, account number, amount and payment date. ---------------------------------------------------------------------------------------------------------------- 6 GE Capital $3,803.46 $3,741.00 10/05/03 account Consumer Card. 419665 Social Security # statement which Co (Dish (GECCC/Echo Star) includes name, Network) account number (listed as 153770), due date, finance charge, annual percentage rate, a change of payment address notice & chapter 13 plan dated 11/5/03 ---------------------------------------------------------------------------------------------------------------- 10 US Bank/ $7,350.78 $7,104.00 12/24/03 account Elan/Retail 0270 0270 summary which Payment (US Bank) includes name, Solutions account number, Bankruptcy— social security #, Recovery amount & date of Dept. last payment ---------------------------------------------------------------------------------------------------------------- 11 Sherman $3,036.19 $2,932.00 Unsecured proof Acquisition, LP 8983655 898655 of claim account Resurgent (Citi) detail which Capital Services includes name, amount, creditor info., & account number ---------------------------------------------------------------------------------------------------------------- 12 Sherman $2,513.51 $2,461.00 Unsecured proof Acquisition, LP 0737928 0737928 of claim account Resurgent (AT & T detail which Capital Services Universal Card) includes name, amount, creditor info., & account number ---------------------------------------------------------------------------------------------------------------- 13 Fleet Bank (RI) $7,127.16 $6,652.00 11/9/03 account N.A. & its 9965 9965 statement which assigns by includes name, eCAST account number, Settlement amount due, Corp. previous balance, finance charge, total minimum payment, overlimit fee, late fee, annual percentage rate & letter agreement between creditor & eCast ----------------------------------------------------------------------------------------------------------------
eCast Settlement Corporation and American Express Travel Related Services Company, Inc. filed responses to some of the Cluffs' claims objections, and the Chapter 13 Trustee also replied, but many of the creditors chose not to respond. A hearing was held and the claims objections taken under advisement. Because these contested matters raise common issues, the Court has determined to issue a single memorandum decision to resolve the matters.
A claim, as defined by 11 U.S.C. § 101(5),
The Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") govern the procedure for obtaining a determination of whether a filed proof of claim may share in the distribution of an estate, and those Bankruptcy Rules should be "construed to secure the just, speedy, and inexpensive determination . . ." of any disputed claims.
The procedure for the filing of a claim is governed by Bankruptcy Rule 3001, among others. Bankruptcy Rule 3001(f) deems an unsecured proof of claim prima facie evidence of the validity and the amount of the claim if it meets the conditions in Bankruptcy Rule 3001(c), and the claim is allowed unless a party in interest objects.
The Debtors in these cases argue that in addition to the carefully drafted statutory reasons for disallowance of a claim listed in § 502(b)(1)-(9), (d) and (e), an unsecured claim evidencing a right to payment should be disallowed when the proof of claim fails to comply with Bankruptcy Rule 3001(c)
Bankruptcy Rule 3001 does not provide substantive grounds for disallowance; it merely determines which party will have the burden of proof moving forward on the objection. Section 502 states that the court "shall allow such claim in such amount, except to the extent that" one of the exceptions found in the statute apply. "The term `shall' is mandatory and generally acts as a command."
The Bankruptcy Rules do not effect substantive rights, "for when Congress accorded the Supreme Court authority to promulgate the Bankruptcy Rules, it stated `[s]uch rules shall not abridge,
If Bankruptcy Rule 3001 does not create an independent reason to disallow a claim, then what is its purpose? Because the Federal Rules of Evidence (the "Evidence Rules") do not give any specific evidentiary effect to particular documents, the Bankruptcy Rules attempt to fill this void by establishing certain minimum standards for proofs of claim.
Unsecured claims can arise as a result of, among other things, a debtor's obligations created by statute, by operation of tort law, or by contract law. Contract obligations in turn may arise from both written or oral contracts. The issue is which of these potential reasons for claims are included in that group of claims that is "based on a writing," for if the unsecured claim is not based on a writing, no documentation is required to achieve prima facie status. The Code does not define the term "based on a writing," so we start, as always, with the language of the Rule itself and its history.
Having determined what "based" means, the rather more interesting task is to determine what constitutes a "writing." A dictionary definition of a writing means "anything written or printed; anything expressed in characters or letters; as: (a) Any legal instrument, as a deed, a receipt, a bond, an agreement, or the like."
Incorporating the plain meaning of "writing" with the plain meaning of "based," the Court now determines that the phrase "based on a writing" should be interpreted to include the fundamental part that creates a legal obligation and that is evidenced by any expressive format, set down by hand or typewriting, mechanical or electronic transmissions. Though this is not an exhaustive list of potential formats, this interpretation comports with the purpose of former Bankruptcy Rule 13-302, current Bankruptcy Rule 3001(c), and Evidence Rule 1001. This definition is also inclusive enough to cover circumstances, as is often the case in today's commercial context, where the parties bind themselves through mechanical or electronic media.
Having determined how to identify a claim that is "based on a writing," it follows that it is necessary to decide what type of documentation satisfies the requirement of Bankruptcy Rule 3001(c). The simple answer of promissory notes, contracts, or purchase documents is not broad enough to cover many of the claims in these cases. Two credit card companies have responded to the Debtors' claims objections by arguing that if their claims are based on a writing, the documents they have attached to their claims comply with the requirements of Bankruptcy Rule 3001(c). Under the test this Court has articulated, these credit card debts are based on a writing.
Therefore, in order for a credit card company to fulfill the requirements of Bankruptcy Rule 3001(c), it would have to produce the original or copy of a document, mechanical imprint, or some memorialization of an electronic transmission that formed the fundamental part that creates the legal obligation for each transaction a debtor makes during the period over which the debts were incurred.
This conclusion is consistent with the requirements of both Official Form 10 and Rule 1006 of the Evidence Rules. Paragraph 8 of Official Form 10 states, "[a]ttach copies of supporting documents including . . . purchase orders, itemized statements of running accounts. . . . If the documents are voluminous, attach a summary."
The official form specifically instructs claimants to attach summaries of lengthy documents.
To provide parties with sufficient information to ascertain the basis and accuracy of the creditor's claim, the summary attached to the proof of claim should: (i) include the amount of the debts; (ii) indicate the name and account number of the debtor;
Proof of claim number 16 in the Cluffs' case is an example of a claim that is entitled to prima facie validity. The debt is owed to Fleet Credit Card Services, L.P. in the amount of $8,721.78. The proof of claim is in writing, signed by an authorized agent, and substantially conforms with Official Form 10. The debts are based on a writing because the debts (the legal obligations) are evidenced by the monthly charges and fees which were electronically recorded and transmitted into a monthly statement. The creditor has not attached a copy of writings evidencing each transaction: however, as paragraph 8 of Official Form 10 instructs, the creditor has attached to the proof of claim an account summary of the itemized debts. The summary contains the total amount of the accrued debts, the name and account number of the debtor, and the summary is part of a business record produced by Fleet Card Services on a monthly basis. Additionally, the monthly statement shows, inter alia, the minimum payment due, previous balance, finance charge, interest rate, and any purchases or cash advances during the billing cycle. This proof of claim fulfills all of the requirements of Bankruptcy Rule 3001.
The Bankruptcy Rules create a presumption of validity for a proof of claim that complies with Bankruptcy Rule 3001. If a proof of claim enjoys this evidentiary presumption, the objecting party has the burden of coming forward with evidence to support its objection and rebut the proof of claim.
The Court cannot provide the parties with an example of a proof of claim whose prima facie validity has been rebutted because none exists in these cases. Neither of the Debtors have fulfilled the requirements articulated above.
Failing to attach the writing required by Bankruptcy Rule 3001(c) "does not automatically invalidate the claim: it does, however, deprive the claim of prima facie validity under Bankruptcy Rule 3001(f)."
Proof of claim number 5 in the Cluff case is not entitled to treatment as prima facie evidence of the validity of the claim. The Official Form lists the creditor as Discover Financial Services, the account number, the amount due as $7,940.97, the proof of claim is signed by the creditor's authorized agent, and the basis of the claim refers to "itemized statement attached." The document attached as the itemized statement is a statement summary dated November 20, 2003 which includes the debtor's name, account number, previous balance amount of $8,573.97, a payment due of $638, purchases of $5, and a remaining balance. There is no statement regarding the annual percentage rate applied to this debt, if any, nor is there an itemization of any other charges or late fees listed. A review of the proof of claim indicates that this is a credit card debt, and credit card debts are subject to interest charges. Paragraph 4 of the Official Form instructs creditors to "Check this box if claim includes interest or other charges in addition to the principal amount of the claim. Attach itemized statement." The creditor has not checked the box in paragraph 4 indicating that a portion of the claim includes interest, nor has it separately itemized or listed the interest rate on the statement summary.
The Court finds that the Debtors have failed to adequately object to the proofs of claim because they have failed to negate
Proofs of claim 6, 9, 16, and 18 in the Cluff case
The objections filed by these Debtors fall short of rebutting the evidentiary presumption in four respects. First, the Debtors have not overcome the prima facie validity of the claims because they have merely filed pleadings objecting to the claims, without more. A validly filed claim "is more than `some' evidence; it is, unless rebutted, `prima facie' evidence. One rebuts evidence with counter-evidence,"
Second, although the objections are in writing, filed with the court, and signed by the Debtors' counsel under penalty of Bankruptcy Rule 9011,
Third, the objections do not implicate any of the statutory reasons articulated in § 502(b)(1) — (9) for disallowing claims. The Taylor trial court stated:
The formal objections do not challenge and certainly do not undermine the prima facie validity of the claims.
Finally, the Debtors originally listed these debts on their schedules as uncontested, liquidated, and non-contingent. These acknowledgments are deemed an admission of the debt under the Evidence
The Debtors have failed to come forward with any evidence to rebut the evidentiary presumption the proofs of claim enjoy because they have been filed in accordance with § 501 and Bankruptcy Rule 3001. As a result, the Debtors have not presented sufficient evidence to rebut either the claims' prima facie validity or the evidence attached to the proofs of claim.
Claims 5,
The objection to proof of claim 23 in Cluff and claims 2 and 10 and in Medina are overruled. These claims are distinguishable from the other claims because the Debtors have presented no evidence that these claims are based on a writing and it is impossible for the Court to guess what type of obligations are memorialized
Proof of claim 23 in the Cluff case is more problematic. It refers to "goods sold" through the merchant Bernina on account number 9111 in the amount of $5,875.90, and has been assigned to eCast Settlement Corporation. eCast Settlement Corporation was not listed as an unsecured creditor on the Cluffs' original schedules. But the creditor Retail Services secured by a sewing machine with an account number 9111 and a claim of $5,807.00 is listed on the schedules. Other than the Cluffs' allegations in their objection, there is no evidence before this Court that this debt is based on a writing. As a result, the only evidence before the Court is eCast's proof of claim which alleges that the Cluffs owe $5,875.90 to the claimant. The Cluffs' mere formal objection, without more, is insufficient for this Court to disallow the claim.
Some of the parties assert that it is disingenuous for the Debtors, who originally listed these debts as undisputed, liquidated and non-contingent on their statements and schedules, to challenge the claims not on the grounds that the Debtors do not owe the creditors money, but because the creditor has allegedly failed to attach sufficient written documentation. The parties argue that such a technical procedural objection is "inconsistent with the spirit and statutory requirements of Chapter 13 that necessitate debtors to make good faith efforts to repay creditors."
The Court agrees that on its face it seems disingenuous for litigants to take one position in the initial stages of litigation only to take the opposite position when it serves their purposes at a later time.
As a final note, it is important to distinguish these Chapter 13 cases from Chapter 7 or 11 cases in which a trustee reviews a proof of claim asserting that the debtor owes a debt, but the claim does not attach documents supporting the claim. Unless claims are already listed as disputed, unliquidated, or contingent on a debtor's statements and schedules, a Chapter 7 or 11 trustee must examine a debtor's books and records to determine which claims are truly owed and which claims are objectionable. The Chapter 7 or 11 trustee is not privy to the personal history of the debtor and does not have first-hand knowledge of the debtor's debts. A mere formal objection from a Chapter 7 or 11 trustee does not raise the same issues of bad faith which may arise when a debtor, who has personal knowledge of a debt and who has admitted to that debt, later objects to the undisputed claim based on a technicality.
The Debtors' objections to these unsecured claims are overruled because many of the claims are entitled to prima facie validity and the Debtors have not rebutted that presumption with sufficient evidence. The Debtors' objections to proofs of claim not entitled to prima facie validity are overruled because the Debtors have not come forward with any evidence that is of equal force to that contained in the claim to rebut the allegations made in the proofs of claim.
In this decision, the Court has attempted to strike a balance as well as to provide both debtors and creditors clear standards to interpret and apply, but, as the length of this opinion demonstrates, a bright line test that covers the multiplicity of variations in claims is not possible. Employing these standards should provide debtors and creditors with a clear and helpful pathway to proceed through the thicket of claims disallowance. A separate order will follow.
FootNotes
In re Musgrove 187 B.R. 808, 812-13 (Bankr.N.D.Ga.1995).
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