FILED JAN 31 2012 SUSAN M SPRAUL, CLERK 1 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-11-1131-PaMkLa ) 6 BROTMAN MEDICAL CENTER, INC., ) Bk. No. 07-19705-BB ) 7 Debtor. ) ___________________________________) 8 ) RETHA GREEN, ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M1 11 ) BROTMAN MEDICAL CENTER, INC. ) 12 CREDITOR’S TRUST, ) ) 13 Appellee. ) ) 14 ___________________________________) 15 Argued and Submitted on January 20, 2012 at Pasadena, California 16 Filed - January 31, 2012 17 Appeal from the United States Bankruptcy Court 18 for the Central District of California 19 Honorable Sheri A. Bluebond, Bankruptcy Judge, Presiding 20 Appearances: Freddie Fletcher, Esq. argued for appellant Retha 21 Green; Paul S. Arrow of Buchalter Nemer, PC argued for appellee Brotman Medical Center, Inc. 22 Creditor's Trust. 23 Before: PAPPAS, MARKELL and LAFFERTY,2 Bankruptcy Judges. 24 1 25 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have 26 (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1. 27 2 The Honorable William J. Lafferty, III, U.S. Bankruptcy 28 Judge for the Northern District of California, sitting by designation.
-1- 1 Appellant Retha Green (“Appellant”)3 appeals the bankruptcy 2 court’s order disallowing Appellant’s claim in the chapter 114 3 case of Brotman Medical Center, Inc. (“Debtor”). We REVERSE. 4 FACTS 5 Appellant was the mother of Linda Sue Brown (“Brown”), a 6 developmentally disabled adult. Debtor is a general acute care 7 hospital. In July 2006, Brown died after receiving medical 8 treatment at Debtor’s facilities. 9 Appellant later sued Debtor, its doctors and nurses in 10 California Superior Court alleging that the defendants had 11 committed a battery against Brown and abused her as a “dependent 12 adult” as that term applies in the California Elder Abuse and 13 Dependent Adult Civil Protection Act.5 In a First Amended 14 Complaint (“FAC”) filed August 27, 2007, Appellant sought to 15 recover $5 million in compensatory damages and $25 million in 16 punitive damages for “Common Law Battery,” $250,000 for Brown’s 17 pain and suffering, Brown’s medical costs, and $25 million in 18 punitive damages for “Abuse of [a] Dependent Adult.” 19 The defendants, including Debtor, filed demurrers. On 20 October 25, 2007, before the hearing on the demurrers, Debtor 21 3 Appellant appeals by and through a guardian ad litem, 22 Rosslyn Diamond. 23 4 Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, or 24 to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. 25 5 Appellant alleges Debtor fabricated a medical condition for Brown, provided her with unnecessary blood transfusions, 26 performed unnecessary and improperly consented-to surgery, and provided insufficient post-surgical monitoring. At the same time, 27 Appellant alleges Brown suffered from a different, life- threatening condition, which went untreated by Debtor, killing her 28 while in Debtor’s care.
-2- 1 filed a chapter 11 bankruptcy petition. When Debtor filed its 2 schedules of liabilities in the bankruptcy court on December 26, 3 2007, it indicated $34,929,926.87 was owed to “Creditors Holding 4 Unsecured Nonpriority Claims.” Brown was listed among those 5 creditors, though because of the state court litigation, the 6 “total amount of claim” for Brown was listed as “unknown,” and was 7 not included in the total amount owed to unsecured creditors. 8 The state court held a hearing on October 30, 2007, and 9 sustained the demurrers, but granted Appellant twenty days to 10 amend the FAC. Appellant moved for reconsideration but, in early 11 December 2007, the demurrers were again sustained with twenty 12 days’ leave to amend (“Twenty Day Period”). 13 Knowing she only had twenty days to amend the FAC, and 14 recognizing Debtor’s bankruptcy filing had imposed an automatic 15 stay, Appellant moved for relief from the stay in Debtor’s 16 bankruptcy case on December 14, 2007 (“First Stay Motion”). In a 17 memorandum filed in support of the First Stay Motion, Appellant 18 explained the Common Law Battery and Abuse of Dependent Adult 19 causes of action she was asserting against Debtor in state court, 20 and outlined the facts she believed supported those claims. 21 Appellant requested that the bankruptcy court grant her relief “to 22 continue litigation of the pending state court lawsuit against 23 Debtor . . . including the filing of a second amended complaint 24 therein.” A copy of the FAC was attached as an exhibit to the 25 First Stay Motion. 26 Debtor opposed Appellant’s First Stay Motion on December 26, 27 2007. However, in its opposition, Debtor indicated it would agree 28 to stay relief if Appellant waived all potential claims against
-3- 1 Debtor, sought satisfaction of her claims solely from “applicable 2 insurance proceeds, if any,” and if the bankruptcy court “barred 3 [Appellant] from filing a proof of claim in the Debtor’s 4 bankruptcy case.” 5 Before the bankruptcy court considered the First Stay Motion, 6 Appellant filed a Second Amended Complaint with the state court on 7 December 31, 2007, as the Twenty Day Period was about to expire.6 8 Appellant’s Second Amended Complaint explained that Debtor is “not 9 listed as a named defendant [in the Second Amended Complaint] 10 because the bankruptcy automatic stay pursuant to 11 U.S.C. [§] 11 362(a)(1) prevents the same.” Rather, Appellant “reserve[d] the 12 right to name [Debtor] as a defendant in this action upon 13 obtaining relief from the automatic stay.” 14 The bankruptcy court issued a tentative ruling on Appellant’s 15 First Stay Motion on February 5, 2008. That tentative ruling 16 stated in part that: 17 Court agrees that, if and when the merits of movant’s claims need to be resolved, state 18 court is the appropriate forum; however, nothing contained in the motion explains why 19 relief from stay needs to be granted now. If movant were prepared to waive any claims 20 against the estate and proceed only against insurance coverage, continued prosecution of 21 this litigation would be less likely to distract the debtor and its principals from 22 its reorganization efforts (and the court could, therefore, be inclined to grant such 23 relief). Absent such a waiver, however, it would adversely impact the debtor’s 24 reorganization efforts if this litigation were to move forward at this juncture. 25 26 Tentative Ruling on Motion for Stay Relief, Feb. 5, 2008. 27 6 In the Second Amended Complaint, Appellant further explained her reasoning for the Common Law Battery and Abuse of 28 Dependent Adult claims, and added a Medical Malpractice claim.
-4- 1 At the February 5, 2008, hearing on Appellant’s First Stay 2 Motion, Appellant’s lawyer explained that, because Appellant was 3 asserting intentional tort claims against Debtor, it was possible 4 that such claims would not be covered by Debtor’s insurance. 5 Appellant could not, therefore, agree to waive her claims against 6 Debtor and proceed solely against insurance coverage. The 7 bankruptcy court denied Appellant’s First Stay Motion without 8 prejudice in an order entered that same day. The bankruptcy court 9 thereafter established an April 8, 2008 deadline for filing proofs 10 of claim in Debtor’s bankruptcy case. 11 Appellant appealed the bankruptcy court’s denial of her First 12 Stay Motion to the Bankruptcy Appellate Panel. She did not file a 13 formal proof of claim by the April 8, 2008, bar date. Appellant’s 14 attorney would later explain that he incorrectly understood 15 Appellant could only file a formal proof of claim in Debtor’s case 16 after she secured a judgment against Debtor. Because Appellant 17 filed no proof of claim by the claims bar date, and could 18 therefore receive no distribution in Debtor’s bankruptcy case, 19 Debtor argued to the BAP that the appeal of the First Stay Motion 20 was moot. 21 The Panel decided the bankruptcy court did not abuse its 22 discretion in denying Appellant’s First Stay Motion, and affirmed 23 its order. However, in its Memorandum decision, the Panel 24 rejected Debtor’s mootness argument. The Panel explained that 25 Appellant’s FAC sufficiently alleged a “claim” for purposes of the 26 Bankruptcy Code, and that Appellant could assert that claim in 27 Debtor’s bankruptcy case before receiving a judgment against 28 Debtor in state court. Moreover, the Panel noted that Appellant’s
-5- 1 First Stay Motion, “which included a copy of the complaint, may be 2 sufficient to provide notice of her claim and may serve as an 3 informal proof of claim.” Green v. Brotman Med. Ctr., Inc. 4 (In re Brotman Med. Ctr., Inc.), BAP no. CC-08-1056, slip. op. at 5 10 (9th Cir. BAP, August 15, 2008). 6 Appellant filed a second motion for relief from the automatic 7 stay in Debtor’s bankruptcy case on September 10, 2008 (“Second 8 Stay Motion”). Debtor opposed Appellant’s motion. On October 30, 9 2008, the bankruptcy court denied Appellant’s Second Stay Motion, 10 adopting extensive findings of facts and conclusions of law 11 prepared by Debtor’s counsel in doing so. Among these is a 12 finding that Debtor does not have insurance to defend against 13 intentional torts. 14 Debtor filed a Second Amended Chapter 11 Plan (the “Plan”) 15 and Disclosure Statement on November 3, 2008. The Disclosure 16 Statement indicated that, to date, proofs of claim for 17 $29,728,025.41 in unsecured claims had been submitted, and Debtor 18 estimated the total allowable unsecured claims against the 19 bankruptcy estate to be approximately $18–22 million. Thus, even 20 for properly submitted proofs of claim, Debtor’s estimate of 21 allowable claims only included those which it considered to be 22 “[un]objectionable as [f]iled.” 23 The Plan provided for the creation of a Creditor Trust 24 (“Trust”) to oversee plan distributions to allowed Class 4 claims, 25 which included “General Unsecured Claims,” such as Appellant’s. 26 27 28
-6- 1 It also provided that $7.5 million7 was available for the benefit 2 of such claims and any “small claims.” The Plan gives the Trust 3 “the sole right and authority to [f]ile, settle, compromise, 4 withdraw or litigate to judgment objections to Class 4 Claims.” 5 It also recognized that pre-confirmation wrongful death claimants 6 were to be enjoined by the discharge injunction “from commencing 7 or continuing any action to collect such Claim except in 8 conformity with . . . ADR Procedures [outlined in Exhibit H to the 9 Plan].” Per the Plan, if Debtor and a claimant participated in a 10 good faith mediation effort without reaching a settlement, the 11 claimant could then receive relief from the injunction. 12 The Plan was confirmed March 30, 2009, and the Trust was 13 created. On May 11, 2009, Appellant filed a formal proof of claim 14 in Debtor’s chapter 11 case (“Formal POC”). On the Formal POC 15 form, Appellant checked a box indicating the form amended a 16 previously filed “Informal Claim,” and that the informal claim was 17 a “Motion for relief from stay: Filed on: 12/14/07.” Appellant 18 identified the claim’s amount as “[greater than] $250,000.00,” and 19 stated the basis for the claim was a “[w]rongful death incident to 20 battery & abuse of dependent adult.” In a footnote to the Formal 21 POC, Appellant explained that “[a]n informal claim was made by 22 filing [a] motion for relief from stay on 12/14/07. This claim 23 amends with a formal claim. In re Pizza of Hawaii, Inc., 761 F.2d 24 1374, 1381 (9th Cir. 1985); [Sambo's Rests., Inc. v. Wheeler 25 (]In re Sambo's Rests., Inc.[)], 754 F.2d 811, 815 (9th Cir. 26 7 Of this amount, $3.5 million was cash provided from Debtor 27 to the Trust. The remaining $4 million was in the form of an unsecured note issued by Debtor for the benefit of allowed Class 4 28 claims.
-7- 1 1985).” 2 Attorneys for the Trust contacted Appellant’s counsel about 3 the Formal POC on June 19, 2009, indicating the Trust disputed the 4 claim, and directing Appellant to pursue the ADR procedures set 5 forth in Exhibit H to the Plan. The Trust’s attorneys also 6 advised that Appellant’s claim could be quickly resolved if she 7 would agree to limit her recovery to available insurance proceeds 8 and would not seek recovery from the Trust. 9 On July 5, 2009, Appellant responded to the Trust, indicating 10 she was willing to participate in the mediation program. 11 Appellant also indicated she would waive her right to receive 12 distributions from the Trust if she was paid $250,000 from 13 available insurance coverage. 14 After not hearing from the Trust for several months, 15 Appellant initiated contact to verify the status of her claim in 16 the ADR process. The Trust informed Appellant that her claim was 17 being handled by another law firm which, ultimately, directed 18 Appellant to yet another law firm. That firm put Appellant in 19 contact with the party overseeing the ADR process, Judicate West. 20 While Judicate West contacted Appellant in October 2009, and 21 decided on an acceptable mediator, no mediation date was scheduled 22 because it needed to verify dates with the Trust. No mediation 23 dates were ever scheduled through this process. 24 The Trust finally contacted Appellant in March 2010, 25 requesting a status update. Appellant responded that she had 26 heard nothing about her claim since her contact with Judicate West 27 in October 2009. After an informal settlement discussion between 28 the Trust and Appellant, Appellant rejected the Trust’s offer to
-8- 1 settle her claim for $75,000 to $100,000. The Trust again offered 2 to stipulate to relief from stay for Appellant if she would agree 3 to limit her recovery to available insurance coverage and to 4 withdraw “the proof of claim presently on file.” On April 27, 5 2010, the Trust notified Appellant that, if she did not agree to 6 such a stipulation within the next ten days, it would file an 7 objection to Appellant’s claim with the bankruptcy court. 8 The matter did not settle and, on July 12, 2010, the Trust 9 filed a motion asking the bankruptcy court to disallow Appellant’s 10 claim. In support of its motion, the Trust asserted Appellant was 11 barred from pursuing her claim by the Plan discharge and 12 injunction, and that Appellant had not “avail[ed] herself” of the 13 ADR process through which relief from the injunction could be 14 obtained. The Trust asserted that Appellant’s claim should be 15 disallowed because no proof of claim was filed until after the bar 16 date. Appellant opposed the Trust’s motion, arguing that her two 17 stay relief motions were sufficient to constitute an informal 18 proof of claim. 19 An initial hearing on the Trust’s motion was conducted in the 20 bankruptcy court on August 11, 2010. Rather than discussing the 21 informal proof of claim issue, the bankruptcy court used that 22 hearing to advance the ADR process by committing the parties to 23 continue mediation. The Trust’s claim objection hearing was 24 continued until after the parties met for mediation. 25 At about the same time it filed its motion for disallowance 26 of Appellant’s claim, the Trust made its first distribution to 27 Class 4 claimants. In a May 25, 2010, status report to the 28 bankruptcy court, Debtor stated that, in spite of the fact that
-9- 1 the Trust was “still analyzing, reconciling and resolving several 2 Class 4 Claims,” it would make its first distribution to Class 4 3 claimants “within the next few months.” At the August 2010, 4 hearing on the Trust’s objection to Appellant’s claim, the Trust 5 represented that Appellant’s claim was “one of the remaining open 6 claims that we need to resolve in order to make a distribution to 7 creditors.” Hr’g Tr. 3:9–11, Aug. 11, 2010. By November 23, 8 2010, Appellant held the sole remaining contested claim. 9 Apparently, the Trust decided it did not “need to resolve” 10 Appellant’s claim before making a distribution to other Class 4 11 claimants; it distributed $1,463,056.62 to such claimants by 12 October 30, 2010. At the same time, the Trust established a 13 $250,000 “reserve” for the potential payment of Appellant’s claim. 14 As of March 31, 2011, the Trust had made a second distribution, 15 and the aggregate distribution to Class 4 claimants was 16 $3,482,365.30. 17 Appellant and Debtor participated in an unsuccessful 18 mediation on January 19, 2011. The bankruptcy court reconvened 19 the hearing on the Trust’s claim objection on January 26, 2011; 20 the only remaining issue was the timeliness of Appellant’s claims 21 in the bankruptcy case. 22 At the hearing, the bankruptcy court expressed concern that 23 Appellant had never filed a motion to have her First Stay Motion 24 deemed an informal proof of claim. Appellant disputed she was 25 required to make such a motion. While the bankruptcy court 26 insisted there was such a requirement, it conceded it could not 27 cite Appellant to authority from the bench for the proposition. 28 The bankruptcy court then sustained the Trust’s claim objection on
-10- 1 the basis that Appellant had missed the claims bar date because 2 she had not filed a motion to have her First Stay Motion 3 considered an informal proof of claim. 4 Counsel for Appellant pressed the bankruptcy judge to explain 5 the basis for her ruling in more detail. The bankruptcy court 6 declined, directed the Trust’s attorney to draft an order 7 disallowing Appellant’s claim, and indicated that “the order that 8 I sign will include my reasons as stated on the record.” Hr’g Tr. 9 12:21–22, Jan. 26, 2011 (emphasis added). The only reason stated 10 on the record for the court’s decision to disallow Appellant’s 11 claim was that the court would not “make rulings unless somebody 12 requests them in a motion,” Appellant “never sought that relief,” 13 and “there was a bar date [and Appellant] did not file by the bar 14 date.” Hr’g Tr. 11:5–7 and 11:25–12:1, Jan. 26, 2011. 15 The bankruptcy court entered an order disallowing Appellant’s 16 claim on February 9, 2011. That order, drafted by the Trust’s 17 attorneys, provides that “[Appellant] has never moved this Court 18 for leave to file a late proof of claim, for a finding that her 19 May 2009[,] Proof of Claim relates back to an earlier informal 20 proof of claim or for a finding that her first motion for relief 21 from stay constitutes an informal proof of claim.” However, in 22 spite of the bankruptcy court’s indication at the hearing that its 23 order would be based solely on the reasons stated on the record, 24 the order also provides, “[t]o the extent that [Appellant’s] 25 opposition to the [Trust’s claim objection] may be construed as a 26 request for [consideration as an informal proof of claim], these 27 requests are denied.” The attorney-drafted order then lists a 28 litany of other reasons why the Trust’s claim objection was
-11- 1 sustained, including that Appellant’s case was distinguishable 2 from other informal proof of claim cases on the evidence; “[t]here 3 is nothing about the conduct of [Appellant] in this case that 4 evidences an intent to take actions that were the functional 5 equivalent of filing a proof of claim”; Appellant “took steps to 6 avoid having her claim adjudicated in a federal forum”; and 7 Appellant “sought only to preserve her right to proceed with the 8 Prepetition State Court Action.” 9 Appellant filed a motion asking the bankruptcy court to 10 reconsider its February 9 order; the motion was denied on 11 March 11, 2011 because, in the court’s view, the motion simply 12 restated the arguments rejected by the court in its February 9, 13 2011, order. Appellant filed a timely notice of appeal on 14 March 22, 2011 15 JURISDICTION 16 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 17 and 157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158. 18 ISSUES 19 Whether the bankruptcy court erred in determining that 20 Appellant’s First Stay Motion did not meet the requirements for an 21 informal proof of claim. 22 Whether the bankruptcy court abused its discretion in 23 disallowing Appellant’s claim on the grounds that it was untimely. 24 STANDARDS OF REVIEW 25 We review a bankruptcy court's decision to allow or disallow 26 a proof of claim for an abuse of discretion. Bitters v. Networks 27 Elec. Corp. (In re Networks Elec. Corp.), 195 B.R. 92, 96 (9th 28 Cir. BAP 1996) ("the bankruptcy court has sole jurisdiction and
-12- 1 discretion to allow or disallow the claim under federal law."). 2 The existence of an informal proof of claim is a question of 3 law reviewed de novo. Hi-Tech Commc’ns Corp. v. Poughkeepsie Bus. 4 Park, LLC (In re Wheatfield Bus. Park, LLC), 308 B.R. 463, 465 5 (9th Cir. BAP 2004) (citing Dicker v. Dye (In re Edelman), 6 237 B.R. 146, 150 (9th Cir. BAP 1999)). De novo review requires 7 the Panel to independently review an issue, without deference to 8 the bankruptcy court’s conclusions. See Cal. Franchise Tax Board 9 v. Wilshire Courtyard (In re Wilshire Courtyard), 459 B.R. 416, 10 423 (9th Cir. BAP 2011) (citing First Ave. W. Bldg., LLC v. James 11 (In re Onecast Media, Inc.), 439 F.3d 558, 561 (9th Cir. 2006)). 12 In applying an abuse of discretion test, we first "determine 13 de novo whether the [bankruptcy] court identified the correct 14 legal rule to apply to the relief requested." United States v. 15 Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc). If the 16 bankruptcy court identified the correct legal rule, we then 17 determine whether its "application of the correct legal standard 18 [to the facts] was (1) illogical, (2)implausible, or (3) without 19 support in inferences that may be drawn from the facts in the 20 record." Id. (internal quotation marks omitted). If the 21 bankruptcy court did not identify the correct legal rule, or if 22 its application of the correct legal standard to the facts was 23 illogical, implausible, or without support in inferences that may 24 be drawn from the facts in the record, the bankruptcy court has 25 abused its discretion. Id. 26 27 28
-13- 1 DISCUSSION 2 I. 3 There is no procedural prerequisite that a creditor file a motion to have the bankruptcy court consider an 4 informal proof of claim. 5 At the January 26, 2011, hearing on the Trust’s motion to 6 disallow Appellant’s claim, the bankruptcy court declined to 7 consider the merits of Appellant’s arguments that her First Stay 8 Motion satisfied the requirements for a timely-filed informal 9 proof of claim. The bankruptcy court instead insisted Appellant 10 was required to first file a motion with the court to consider 11 such documents as an informal proof of claim. Because Appellant 12 had not done so, the bankruptcy court granted the Trust’s request 13 to disallow Appellant’s tardy formal proof of claim. 14 In making this decision, the bankruptcy court abused its 15 discretion because it applied an incorrect legal rule. There is 16 no requirement in the Code, Rules, or case law that a creditor 17 must ask the bankruptcy court to determine that an informal proof 18 of claim exists before that claim is allowed. To the contrary, 19 bankruptcy courts routinely determine the existence of informal 20 proofs of claims in proceedings initiated by parties other than 21 the creditor found to hold such a claim. See, e.g., In re Pizza 22 of Hawaii, Inc., 761 F.2d at 1374 (lack of a formal proof of claim 23 raised, in the first instance, by debtor on appeal); Pac. Res. 24 Credit Union v. Fish (In re Fish), 456 B.R. 413 (9th Cir. BAP 25 2011) (proof of claim issue raised through a debtor’s objection to 26 a claim as late-filed). 27 In this case, there was no procedural impediment preventing 28 the bankruptcy court from considering whether Appellant’s filings
-14- 1 constituted an informal proof of claim, even though Appellant had 2 not filed a motion with the court asking it to do so. The court’s 3 disallowance of the claim based on the “requirement” that 4 Appellant first make such a motion was in error. 5 II. 6 Appellant’s First Stay Motion constituted 7 an informal proof of claim. 8 Though the bankruptcy court did not discuss it at the 9 hearing, in its February 9, 2011, order sustaining the Trust’s 10 objection to Appellant’s claim, the court indicated that, even if 11 Appellant was not required to file a motion to have the First Stay 12 Motion considered an informal proof of claim, she did not meet the 13 informal proof of claim requirements. The order then provided 14 various reasons why the First Stay Motion was not an informal 15 proof of claim. 16 As counsel for the Trust conceded at oral argument, the 17 bankruptcy court’s order merely adopted the findings of fact and 18 conclusions of law drafted by counsel for the Trust. As a result, 19 that order must be reviewed with special scrutiny. See Anderson 20 v. City of Bessemer City, 470 U.S. 564, 571–72 (1985) (recognizing 21 “the potential for overreaching and exaggeration on the part of 22 attorneys preparing findings of fact when they have already been 23 informed that a judge has decided in their favor”); Jess v. Carey 24 (In re Jess), 169 F.3d 1204, 1208–09 (9th Cir. 1999) (recognizing 25 that the wholesale adoption of a party’s proposed findings by a 26 trial court is a “frequently criticized” and disfavored practice); 27 Cinevision Corp. v. City of Burbank, 745 F.2d 560, 581 n.30 (9th 28 Cir. 1984) (finding that, where a trial court engages in the
-15- 1 “disfavored practice” of adopting a prevailing party’s proposed 2 order, an appellate court “must give the order ‘special 3 scrutiny.’”). 4 Based on this record, it appears that the Trust, knowing it 5 was the prevailing party, engaged in inappropriate overreaching 6 and exaggeration in drafting the order adopted by the bankruptcy 7 court. Cf. Anderson, 470 U.S. at 572. At the January 26, 2011, 8 hearing on the Trust’s objection, the bankruptcy court sustained 9 that objection solely because Appellant had not first moved to 10 have the court consider the First Stay Motion as an informal proof 11 of claim. While the bankruptcy court instructed counsel that the 12 Trust-drafted order was to recite the court’s reasons for its 13 ruling “as stated on the record,” the order submitted by the 14 Trust’s attorneys and entered by the court included extensive 15 findings and conclusions beyond those addressed by the court on 16 the record. In particular, the order provides that, because the 17 facts of this case are not a replica of those in other informal 18 proof of claim cases, Appellant did not “evidence[] an intent to 19 take actions that were the functional equivalent of filing a proof 20 of claim.” In addition, while not mentioned by the court at the 21 hearing, the order intimated that Appellant could only have 22 properly demonstrated an informal proof of claim by taking steps 23 to have her claim adjudicated in a “federal forum.” 24 These legal standards, adopted by the bankruptcy court in the 25 order, however, are not those applicable to determine whether an 26 informal proof of claim exists. The informal proof of claim 27 doctrine is well-established in the Ninth Circuit. Indeed, this 28 Panel recently addressed the rules for informal proofs of claims
-16- 1 in In re Fish, 456 B.R. at 413, where, as here, a creditor, among 2 other filings, relied upon pre-claims-bar-date stay relief motions 3 as an informal proof of claim. 4 In essence, a creditor may establish the existence of a 5 timely proof of claim by amending a pre-claims-bar-date “informal 6 proof of claim” by filing a post-claims-bar-date formal proof of 7 claim. In re Fish, 456 B.R. at 417 (citing In re Edelman, 8 237 B.R. at 154). To be effective as an informal proof of claim, 9 a document must satisfy several conditions. In re Edelman, 10 237 B.R. at 155. The creditor must offer the bankruptcy court 11 proof of the “(1) presentment of a writing; (2) within the time 12 for the filing of claims; (3) by or on behalf of the creditor; 13 (4) bringing to the attention of the court; (5) the nature and 14 amount of a claim asserted against the estate.” In re Fish, 15 456 B.R. at 4178 (citing In re Edelman, 237 B.R. at 155). 16 However, bankruptcy courts should be “liberal” in the kind of 17 documentation accepted as an informal proof of claim. In re 18 Sambo’s Rests., Inc., 754 F.2d at 816. 19 A creditor’s request for relief from the automatic stay, with 20 accompanying attachments, meets the informal proof of claim 21 “presentment of a writing” requirement. See In re Pizza of 22 Hawaii, Inc., 761 F.2d at 1381; In re Fish, 456 B.R. at 418. In 23 addition, if a creditor requests stay relief to join a debtor as a 24 defendant in a civil action, such action is, itself, sufficient to 25 show the creditor “inten[ds] to hold the estate liable.” In re 26 8 Fish’s fifth requirement — that the claimant state “the nature and amount of a claim asserted against the estate” — is 27 sometimes formulated as a requirement that the claimant’s writing indicate that the claimant “intend[s] to hold the estate liable.” 28 In re Pizza of Hawaii, Inc., 761 F.2d at 1381.
-17- 1 Pizza of Hawaii, Inc., 761 F.2d at 1381. Documents attached to a 2 stay relief request that detail the nature and contingent amount 3 of the claim asserted against the debtor only further demonstrate 4 the creditor’s intent to hold the estate liable. Id. And where a 5 claim is based on a pending lawsuit, an inexact claim amount is 6 sufficient to demonstrate the “amount of a claim asserted against 7 the estate.” Id.; In re Fish, 456 B.R. at 418. 8 Appellant provided the bankruptcy court, and the Panel on 9 appeal, with an extensive evidentiary record to support the 10 existence of its informal proof of claim. For these purposes, 11 however, only those materials presented, and brought to the 12 bankruptcy court’s attention, before the claims bar date, April 8, 13 2008,9 are relevant. In re Fish, 456 B.R. at 417. 14 When Debtor filed its October 25, 2007, chapter 11 petition, 15 Appellant had filed a complaint against Debtor in state court. 16 Soon after Debtor’s bankruptcy filing, however, the state court 17 sustained Debtor’s demurrer to the FAC, giving Appellant twenty 18 days to amend the complaint. Yet, Appellant could not amend the 19 complaint against Debtor because of the automatic stay invoked by 20 9 Much of the evidentiary record, while clearly indicating an intent to hold Debtor liable for Appellant’s claim, was not 21 presented to the bankruptcy court before the claims bar date. For example, the record documents repeated offers by Debtor to 22 stipulate to stay, injunction, and discharge relief in exchange for Appellant’s agreement to waive Debtor’s liability and to only 23 pursue insurance. While Appellant’s rejection of those offers may evidence her intent to hold Debtor liable, many of the offers and 24 rejections were made after the claims bar date. In addition, Appellant’s Second Amended Complaint clearly indicates Debtor was 25 not a named defendant in that complaint solely because of the automatic stay, and that, upon receiving stay relief, Appellant 26 planned to pursue Debtor. Again, while this evidences Appellant’s intent to hold Debtor liable, and while the state court had the 27 complaint prior to the claims bar date, there is no indication the complaint was presented to the bankruptcy court before April 8, 28 2008.
-18- 1 Debtor’s bankruptcy filing. See § 362(a)(1) (indicating the 2 automatic stay prevents the commencement or continuation of a pre- 3 petition judicial action against a debtor). 4 On December 14, 2007, Appellant filed the First Stay Motion 5 with the bankruptcy court, with an accompanying memorandum, and a 6 copy of her FAC. Included in Appellant’s memorandum was a 7 description of the causes of action she asserted against Debtor, 8 and the facts she believed support those causes of action.10 By 9 filing the First Stay Motion, with its accompanying attachments, 10 Appellant presented a sufficient writing to the bankruptcy court 11 prior to the date for timely filing a proof of claim. Appellant, 12 the creditor seeking to establish an informal proof of claim, 13 brought her claim to the bankruptcy court’s attention through the 14 First Stay Motion. The motion and accompanying memorandum clearly 15 explain the nature of Appellant’s claim against Debtor for common 16 law battery and abuse of a dependent adult, and, by stating she 17 will pursue Debtor upon receiving stay relief, these documents 18 10 Debtor argues that Appellant’s filing of the Second 19 Amended Complaint rendered the FAC a legal nullity, insufficient to establish an informal proof of claim. Even if the FAC is a 20 nullity for purposes of pleading under state law, however, the bankruptcy court and Panel need not rely solely upon the FAC as 21 Appellant’s informal proof of claim. Appellant’s First Stay Motion is also sufficient to constitute an informal proof of 22 claim. Regardless of its legal effect in the state court litigation, the FAC attached to the First Stay Motion can be 23 considered to supplement the motion, providing information on the nature and amount of the claim Appellant intended to pursue 24 against Debtor once stay relief was granted. Indeed, as the Panel’s August 15, 2008, unpublished decision in this case 25 observes, “although [Appellant] has not obtained a judgment against the debtor in the state court action, the causes of action 26 asserted in the complaint constitute claims within the meaning of § 101(5)(A).” Green v. Brotman Med. Ctr., Inc. (In re Brotman 27 Med. Ctr., Inc.), BAP No. CC-08-1056 slip op. at 8 (9th Cir. BAP Aug. 15, 2008) (citing In re Dow Corning Corp., 211 B.R. 545, 560 28 (Bankr. E.D. Mich. 1997)).
-19- 1 evidence Appellant’s intent to hold Debtor liable for her claim. 2 In addition, the FAC attached to the motion further documented her 3 claim against Debtor, her intention to hold Debtor liable for the 4 claim, and the potential amounts of that claim, contingent on the 5 litigation process. 6 Debtor responded to Appellant’s First Stay Motion on 7 December 26, 2007. In that response, Debtor indicated a 8 willingness to stipulate to stay relief in exchange for Appellant 9 waiving all potential claims against Debtor, and agreeing to only 10 pursue insurance proceeds, if any. The bankruptcy court adopted 11 that concept, and, in its February 5, 2008, tentative ruling on 12 Appellant’s First Stay Motion, indicated it would be inclined to 13 grant stay relief if Appellant would waive any claims against 14 Debtor and proceed only against insurance coverage. Debtor’s 15 suggestion, and the bankruptcy court’s subsequent adoption of this 16 “claim waiver” concept further evidenced that, well before the 17 claims bar date, Debtor and the bankruptcy court were presented 18 adequate information to indicate Appellant intended to hold Debtor 19 liable for the claims asserted in her FAC. 20 When Appellant filed her Formal POC on May 11, 2009, she 21 indicated it amended the “informal claim,” i.e., her December 14, 22 2007, First Stay Motion. Appellant’s First Stay Motion and 23 accompanying documents were sufficient to put Debtor and the 24 bankruptcy court on notice that she intended to assert a claim 25 against Debtor, and to satisfy the informal proof of claim 26 requirements. Debtor was keenly aware of this, as evidenced by 27 its attempts to persuade Appellant to waive that claim in exchange 28 for Debtor’s agreement to allow the state court litigation to
-20- 1 continue. 2 III. 3 Allowing Appellant’s proof of claim does not prejudice the Trust. 4 The Trust argues that Appellant’s informal proof of claim 5 should not be allowed because it would prejudice the Trust and 6 other creditors. We disagree. 7 Even where a creditor satisfies the informal proof of claim 8 requirements, a bankruptcy court may disallow an amended proof of 9 claim if allowing the claim would prejudice the debtor or others. 10 See In re Sambo’s Rests., Inc., 754 F.2d at 816–17. Among the 11 factors used to determine potential prejudice are “bad faith or 12 unreasonable delay in filing the amendment, impact on other 13 claimants, reliance by the debtor or other creditors, and change 14 of the debtor’s position.” Wall Street Plaza, LLC v. JSJF Corp. 15 (In re JSJF Corp.), 344 B.R. 94, 102 (9th Cir. BAP 2006) (quoting 16 Roberts Farms Inc. v. Bultman (In re Roberts Farms Inc.), 980 F.2d 17 1248, 1251–52 (9th Cir. 1992)). The burden of identifying actual 18 prejudice that would result from allowing an amendment is on the 19 party objecting to the amendment. See In re Sambo’s Rests., Inc., 20 754 F.2d at 817. 21 There is no evidence in this case that Appellant’s conduct 22 constitutes bad faith. It has not been disputed that Appellant 23 missed the claims bar date because her lawyer misunderstood the 24 nature of the term “claim” in the bankruptcy lexicon. Until the 25 appeal of her First Stay Motion was decided by the BAP on August 26 15, 2008, Appellant operated under the mistaken impression that 27 she did not yet hold a claim for bankruptcy purposes and could not 28 file a proof of claim until she secured a judgment against Debtor.
-21- 1 Of course, under § 101(5)(A), Appellant likely held a contingent 2 claim against Debtor as soon as her state law causes of action 3 arose. 4 By the time Appellant filed her Formal POC in May 2009 5 amending her informal proof of claim, Debtor’s chapter 11 plan had 6 been confirmed. Debtor’s Disclosure Statement estimated the total 7 allowable claims against its bankruptcy estate was approximately 8 $18-22 million. That estimate, however, did not include an amount 9 for “objectionable” claims, regardless of whether a proof of claim 10 had been filed for those claims or not. Because Debtor continued 11 to object to Appellant’s claim, it is unlikely the Disclosure 12 Statement’s estimate of allowable claims would have included an 13 amount for her claim even if she had met the claims bar date. It 14 is therefore unlikely that either Debtor or any other claimants 15 relied on the lack of Appellant’s claim in the confirmation 16 process.11 17 Even so, the Trust argues that, if Appellant’s claim is 18 allowed at this point, other claimants will potentially be 19 impacted because distributions have been made to those claimants 20 that may need to be disgorged if Appellant’s claim is sufficiently 21 large. However, the first of those distributions was made at 22 least a year after Appellant filed her Formal POC. In other 23 words, the Trust was fully aware of Appellant’s claim at the time 24 11 At the same time, the Disclosure Statement included a 25 figure for total submitted claims, whether objectionable or not, which would have included Appellant’s claim had she submitted it 26 before the claims bar date. However, the Trust has not indicated that unsecured creditors relied upon that figure, rather than the 27 estimated allowable claims amount, when calculating their potential pro rata distribution and deciding to vote in favor of 28 the Plan.
-22- 1 it made the distributions. While the Trust’s reports initially 2 represented to the bankruptcy court that it needed to “resolve 3 [Appellant’s claim] in order to make a distribution to creditors,” 4 the Trust instead established a reserve of $250,000 on account of 5 Appellant’s claim, which was the exact amount Appellant had 6 previously indicated she would accept to settle her claim. If 7 claimants will be impacted by allowing Appellant’s proof of claim 8 at this point, it is because the Trust chose to proceed in making 9 distributions in the face of Appellant’s unsettled claim.12 While 10 waiting to make distributions would have delayed payment to 11 claimants, prejudice requires there to be a “legal detriment to 12 the party opposing.” In re JSJF Corp., 334 B.R. at 102. There is 13 no indication in the record that a delay in distributions in this 14 case was a legal detriment to any party, let alone to the Debtor. 15 Finally, the Trust has not changed its position based on the 16 absence of a timely claim from Appellant. Rather, since Appellant 17 filed the FAC in state court, Debtor and the Trust have attempted 18 to settle Appellant’s claim by securing her agreement to waive 19 Debtor’s liability. The Trust also delayed making distributions 20 under the Plan until establishing a reserve in an amount it likely 21 believed was sufficient to settle Appellant’s claim. In short, 22 Appellant’s claim was no surprise to Debtor or the Trust, and it 23 has not been shown that allowing her claim would prejudice Debtor, 24 the Trust, or others. 25 26 12 Of course, at this point, any discussion of prejudice to other creditors is largely hypothetical. Until Appellant’s claim 27 is liquidated, there is no way to determine whether other unsecured creditors will be impacted by allowance of Appellant’s 28 claim or not.
-23- 1 CONCLUSION 2 Because it applied an incorrect legal rule in making its 3 decision, the bankruptcy court abused its discretion when it 4 granted the Trust’s motion to disallow Appellant’s proof of claim. 5 Based upon our independent review, we conclude Appellant’s First 6 Stay Motion, with its accompanying memorandum and exhibits, was 7 sufficient to satisfy the requirements for a timely-filed informal 8 proof of claim. Appellant’s Formal POC served to amend that 9 informal proof of claim. The Trust has not identified any actual 10 prejudice that will result from allowing Appellant’s proof of 11 claim as timely. 12 The order of the bankruptcy court is REVERSED. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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