Integrity Directional Services
- Summarized by Leo Weiss , Office of the U.S. Trustee
- 5 months 2 weeks ago
- Case Type:
- Business
- Case Status:
- Reversed
- Citation:
- 23-6111 (10th Circuit, Jul 25,2024) Not Published
- Tag(s):
-
- Ruling:
- Circuit court reversed the district court's reversal of the bankruptcy court denial of a group of creditors', "Falcon," "Amendment of Informal Proofs of Claim." The bankruptcy found that Falcon had failed to meet three of the five conjunctive requirements for allowance of informal proofs of claim under In re Reliance
Equities, Inc., 966 F.2d 1338, 1345 (10th Cir. 1992), i.e., that the "claim" made a demand for payment from the estate stated an intent to hold the debtor liable on the claim and that the allowance would be "equitable." The Circuit Court held no equities favored allowance.
- Procedural context:
- The Bankruptcy Court for the Western District of Oklahoma denied the "Amendment of Informal Proofs of Claim" filed by a related group of creditors, "Falcon," which held most of the prepetition claims against the debtor, Integrity Directional Services, LLC,, Falcon claimed over $56 million of unsecured claims and $13 million in secured claims. Falcon appealed to the district court which reversed the bankruptcy court finding that the equities favored granting the amendment and that Falcon had made an adequate demand for payment from the estate and an intent to hold the debtor liable on the claims. It remanded the matter to the bankruptcy for entry of orders allowing the amendment.
The Chapter 7 trustee, "Gould," appealed the district court ruling to the Tenth Circuit. The Circuit Court sought additional briefing on the "finality" of district court order, thereby creating a second issue on appeal.
- Facts:
- A related group of creditors, "Falcon," held most of the prepetition claims against the debtor, Integrity Directional Services, LLC,, totaling over $56 million of unsecured claims and $13 million of secured claims. Falcon had received timely notice of the bar date in the case and counsel timely prepared a draft proof of claim. The draft proof of claim was sent to Falcon for approval about three and one half months before the bar date. However, due to a "miscommunication" in counsel's law office, the proofs of claim were filed two days after the bar date.
An "Amendment of Informal Proofs of Claim" was filed by Falcon seeking to have its late filed claims relate back and be deemed to be timely. Gould objected and the bankruptcy court denied the amendment finding that controlling Tenth Circuit law, under In re Reliance Equities, Inc., 966 F.2d 1338, 1345 (10th Cir. 1992) required five conjunctive factors to each be met in order to allow a informal proof of claim, These factors are; 1. a writing, 2. the writing makes a demand on the debtor's estate, 3. the writing must express an intent to make the debtor liable on the claim asserted, 4. the writing must be filed with the bankruptcy court, and 5. the equities of the case favor allowance of the informal proof of claim. The bankruptcy court found that Falcon failed to adequately meet the second, third and fifth Reliance factors and denied the amendment. This result in the claims being allowable only as "tardily filed claims."
On appeal, the district court reversed finding that the equities did favor allowance where the allowance would not make a material difference in the case's administration because Falcon's claims were so large and its secured claims encumbered the assets of the estate. It also found that the various Falcon pleadings prior to the bar date were sufficient to meet the second and third Reliance factors. The district court remanded the case to the bankruptcy court directing the bankruptcy court to allow the informal proofs of claim.
The Circuit Court found that the remand was for a "ministerial" act and that district court order was a "final and appealable order." It agreed that Reliance was controlling law and the Reliance factors were conjunctive. The Circuit found that the bankruptcy court did not abuse its discretion when it found that equities did not favor allowance of the claims where Falcon's counsel could not state any compelling reason why it had not timely filed the Falcon claims. The Court reasoned that it need not review the other Reliance factors where Falcon could not meet the fifth "equities" factor based upon the record before the Circuit Court. It reversed the district court and remanded the case to the bankruptcy court.
- Judge(s):
- MATHESON, BALDOCK, and McHUGH
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