Lisk Electric, Inc. v. Brandt (In re Fesco Plastics Corp.)

908 F.2d 240, 116 B.R. 240, 23 Collier Bankr. Cas. 2d 759, 1990 U.S. App. LEXIS 12843
CourtCourt of Appeals for the Seventh Circuit
DecidedJuly 30, 1990
DocketNo. 89-2721
StatusPublished
Cited by2 cases

This text of 908 F.2d 240 (Lisk Electric, Inc. v. Brandt (In re Fesco Plastics Corp.)) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Lisk Electric, Inc. v. Brandt (In re Fesco Plastics Corp.), 908 F.2d 240, 116 B.R. 240, 23 Collier Bankr. Cas. 2d 759, 1990 U.S. App. LEXIS 12843 (7th Cir. 1990).

Opinion

FLAUM, Circuit Judge.

Petitioners-Appellants Lisk Electric, Inc., Cal-West Plastics, Inc., Industrial Air Compressors, Inc., and Aaron S. Wolff (“Appellants”) are general creditors of Fes-co Plastic Corporation, Inc. (“Fesco”). Fes-co filed for Chapter 11 bankruptcy and listed all of the appellants’ claims on its schedule of liabilities as being owed and not disputed, contingent, or unliquidated. When the Chapter 11 proceeding was converted to a Chapter 7 action, appellants did not “actually” file their claims within the applicable deadline because they were already “deemed” filed under Chapter 11. After a dispute over payment, appellants filed a petition with the bankruptcy court seeking a ruling that they did not have to actually file claims in the Chapter 7 proceeding. The bankruptcy judge denied their petition and held all Chapter 11 claims were disallowed unless a proof of claim was actually filed before the Chapter 7 claim date expired. 101 B.R. 545." The district court affirmed this ruling. For the following reasons, we reverse the district court’s decision.

I.

In September 1984, Fesco filed a voluntary petition for reorganization pursuant to Chapter 11 of the Bankruptcy Code. 11 U.S.C. §§ 1101 et seq. Fesco filed a schedule of debts, as required by 11 U.S.C. § 521(1), and listed all the appellants’ claims as owed but not disputed, contingent, or unliquidated. The appellants did not file a proof of claim in the Chapter 11 proceeding relying on the bankruptcy court’s order that under § 1111(a) of the code “[a]ny scheduled creditor whose claim is not scheduled as disputed, contingent or unliquidated as to amount, may, but need not, file a proof of claim in this case.” By choosing to rely on the listing of their debts in Fesco’s schedules, appellants were “deemed filed” for Chapter 11 purposes, 11 U.S.C. § 1111(a).

In October 1985, the Chapter 11 proceeding was converted by the bankruptcy court to a Chapter 7 dissolution action for resolution under 11 U.S.C. § 701 et seq. The bankruptcy court’s conversion notice set February 6, 1986 as the last day to file claims in the Chapter 7 proceeding and stated that “[creditors who have already filed a proof of claim need not file another claim.” The appellants did not file proofs of claim before the Chapter 7 filing period expired.

In March 1987, responding to the trustee’s dispute over payment of their debts, appellants filed a petition with the United States Bankruptcy Court for the Central District of Illinois for a ruling that a claim need not be filed or, in the alternative, to grant leave to file a claim. The bankruptcy court denied appellants’ petition stating that “[a]ll claims listed on the Debtor’s Chapter 11 Schedule of Debts ... for which no Proof of Claim was filed on or before February 6, 1986 shall be and hereby are disallowed.”

Appellants appealed the bankruptcy judge’s final order to the United States District Court for the Central District of Illinois. The district court, persuaded by what it found to be the practical differences between a Chapter 11 and a Chapter 7 proceeding, held that In re Humblewit Farms, 23 B.R. 703 (Bkrtcy.S.D.Ill.1982), was dispositive. In that case, the court held that a “deemed filed” claim was effective only for Chapter 11 purposes, not for Chapter 7 proceedings. The Humblewit court reasoned that in a Chapter 11 action a debtor in possession, who is familiar with the accounts administers the .reorganization, whereas under Chapter 7, an outside trustee “unfamiliar with the reliability of creditors’ claims” handles the estate and must, therefore, have those claims proved by proofs of claim.

The district court believed its decision was further buttressed by amended Bankruptcy Rule 1019(4). Rule 1019(4) was [242]*242amended in August 1987 and applies only to cases filed after August 1, 1987. Because this bankruptcy proceeding was filed in 1984 the pre-amended rule applies. The district court, however, determined that the amended Rule, which provides that when a Chapter 11 case has been converted to a Chapter 7 case all claims actually filed by a creditor in the superceded case shall be deemed filed in the Chapter 7 case, was instructive on the Rule’s pre-amendment interpretation. Fed.R.Bankr.P. 1019(4) (Aug. 1,1987) (emphasis added). The court reasoned that the amendment merely clarified and did not substantially change the bankruptcy rules and, correspondingly, because appellants’ claims were not actually filed they must fail. Accordingly, the district court affirmed the bankruptcy court and disallowed the appellants’ claims. Appellants appeal to this Court.

II.

We are asked to determine whether under pre-amended Bankruptcy Rule 1019(4) creditors, whose claims were listed on a Chapter 11 schedule of liabilities as not disputed, contingent, or unliquidated, must actually file a claim in the converted Chapter 7 case. A review of the applicable provisions of the Bankruptcy Code (the “Code”) and appropriate Bankruptcy Rules (the “Rules”) leads us to conclude that an actual filing of a proof of claim was not necessary.

We begin with the applicable Code provisions. Section 1111(a) of the Code provides that:

A proof of claim or interest is deemed filed under section 501 of this title for any claim or interest that appears in the schedules filed under section 521(1) or 1106(a)(2) of this title, except a claim or interest that is scheduled as disputed, contingent, or unliquidated.

11 U.S.C. § 1111(a).

It is undisputed that Fesco’s schedule of liabilities listed appellants’ claims in such a way that they were “deemed filed” under section 1111(a) and, therefore, properly filed for Chapter 11 purposes.

The parties differ, however, as to whether a claim deemed filed for Chapter 11 purposes has also been properly filed for the converted Chapter 7 proceeding. At issue is the interpretation of Rule 1019(4) which provides for such a conversion. The Rule originally stated that “all claims filed in the superceded [Chapter 11] case shall be deemed filed in the Chapter 7 case.” The Rule has been subsequently amended to read “all claims actually filed in the superceded case shall be.... ” The district court found this change significant, as do we, but for a different reason.

We believe that the amendment, although only the addition of one word, was adopted to significantly change, rather than clarify, the law. In In re Crouthamel Potato Chip Co., 786 F.2d 141 (3rd Cir.1986), the Third Circuit, after reviewing the legislative history, the purpose and philosophy of the bankruptcy rules, and the realities of bankruptcy practice, decided the very issue we are presented with today.

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908 F.2d 240, 116 B.R. 240, 23 Collier Bankr. Cas. 2d 759, 1990 U.S. App. LEXIS 12843, Counsel Stack Legal Research, https://law.counselstack.com/opinion/lisk-electric-inc-v-brandt-in-re-fesco-plastics-corp-ca7-1990.