Payne v. Lampe (In re Lampe)

Payne v. Lampe, No. 11-1819 (3d Cir. Dec. 30, 2011)
See below.
Procedural context:
Appeal from the United States District Court for the Eastern District of Pennsylvania affirming the Bankruptcy Court’s order dismissing an adversary proceeding brought by custodian against debtor and sustaining debtors’ objections to custodian’s proof of claim. Reversed and remanded.
Payne, successor custodian of L.L. (the minor) to Harold Lampe, brought suit in Pennsylvania state court against Lampe alleging breach of fiduciary duties as previous custodian for L.L.’s shares in a family-owned corporation, WEL, and as a director of WEL. Lampe was, at the same time, a creditor and director of WEL, when he obtained judgment against WEL, then caused certain assets of WEL to be sold in partial satisfaction of his claim. Payne alleged that Lampe engaged in self-dealing and breached his duties of care and loyalty owed to L.L. and WEL, resulting in his unjust enrichment at the expense of L.L. and WEL. Lampe filed a voluntary case under Chapter 11, staying the state court action. Payne filed an unsecured claim in Lampe’s bankruptcy and brought an adversary proceeding largely mirroring the allegations in the Pennsylvania state court action. Lampe objected to Payne’s proof of claim on the basis that, inter alia, it was not entitled to be treated as prima facie valid under Bankruptcy Rule 3001(c) and (f), because it did not include any attachments or factual explanation for the claim other than the generalized allegation that Lampe had engaged in fraud and breach of fiduciary duties. Op. at 11. After a bench trial on the consolidated adversary proceeding and objections to proof of claim, the Bankruptcy Court upheld Lampe’s claim objections and entered judgment in Lampe’s favor in the adversary proceeding. The District Court affirmed, adopting the Bankruptcy Court’s reasoning. The Third Circuit reviewed the Bankruptcy Court’s factual findings for clear error and conclusions of law de novo. Op. at 15. The Third Circuit held: (a) The Bankruptcy Court erred in holding that Payne’s proof of claim was not entitled to prima facie validity for failure to attach supporting documentation. A proof of claim is deemed allowed unless a party in interest objects. 11 U.S.C. § 502(a). A claim filed in accordance with the bankruptcy rules is prima facie evidence of the validity and amount of the claim. Rule 3001(f). Thus, a “claim that alleges sufficient facts to support liability satisfies the claimant’s initial obligation to proceed, after which the burden shifts to the objector to produce sufficient evidence to negate the prima facie validity of the filed claim.” The burden of persuasion at all times remains with the claimant. Op. at 16. (b) The Bankruptcy Court erred in holding that Payne’s proof of claim was subject to Rule 3001(c), which provides that “[w]hen a claim, or an interest in property of the debtor securing the claim, is based on a writing, the original or duplicate shall be filed with the proof of claim […]” Payne’s claim was not “based on a writing” but on “what are essentially state law tort principles.” Op. at 17 (citing to Restatement of Torts on liability for breach of fiduciary duties). The Circuit held that Rule 3001(c) “only applies when a writing created the purported obligation and is not applicable merely because a document might play some role in establishing the claim.” Id. While Payne’s state-court complaint, documents relating to the sale of property and the shareholder certificate establishing Lampe’s custodianship for L.L.’s shares “have evidentiary value in establishing Payne’s claim, the do not demonstrate that Lampe engaged in unlawful conduct and we see no way to hold that they created Lampe’s obligation.” Id. The function of Rule 3001(c) is to provide proper notice to the debtor of the basis of a claim; Lampe had that notice. Op. at 17-18. (c) The Bankruptcy Court erred in holding that Lampe did not breach his fiduciary duties as WEL’s director. Op. at 19, et seq. The substance of a claim is governed by state law. The Third Circuit engaged in a discussion of applicable sections of Pennsylvania’s Business Corporation Law and case law, concluding that Lampe breached both his duty of care and duty of loyalty he owed to WEL. The Third Circuit rejected the lower courts’ determination that unjust enrichment was an essential element of breach of duty of care. Op. at 20, 30. Lampe was not afforded the presumption of the business judgment rule, because he had engaged in self-dealing. Op. at 22. (d) Lampe’s fiduciary duties as custodian for L.L.’s WEL shares, codified in the Pennsylvania Uniform Transfers to Minors Act (“PUTMA,” successor legislation to the Pennsylvania Uniform Gifts to Minors Act, or “PUGMA”), largely track his fiduciary duties to L.L. and WEL as director of the corporation. Op. at 31, et seq. Lampe breached both his duty of care and duty of loyalty as PUTMA custodian. Lampe’s duty of loyalty encompassed not only the “duty to look after [L.L.’s] shares themselves, but also not to do anything that would reduce their value to L.L.’s detriment.” Op. at 35.
McKee, C.J., Fuentes & Greenberg, JJ.

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