Conceptualizing Claim Objections Part I The Fed. R. Civ. P. 56 Analogy

Journal Issue

Jun 2006

Column Name

Practice & Procedure

Citation

ABI Journal, Vol. XXV, No. 5, p. 42, June 2006

Bankruptcy Code

502

Topic Tags

Practice and Procedure

Journal HTML Content

Suppose the following: Cindy the Civil Plaintiff sells $75,001 worth of goods to Dave
the Diverse Defendant, but Dave does not pay her for them. Cindy files a complaint
against Dave in federal district court. After an appropriate jurisdictional
allegation, the complaint reads: "Dave owes Cindy $75,001 for goods sold
and delivered by Cindy to Dave between Jan. 1, 2005 and April 1, 2005. Wherefore,
Cindy demands judgment against Dave for the sum of $75,001." Realizing
that Cindy's complaint is sufficient as a matter of law,1 Dave foregoes
a Fed. R. Civ. P. 12(b)(6) motion and files the following answer: "Dave
denies that he owes Cindy anything." Thereafter, Cindy brings a motion
for summary judgment under Fed. R. Civ. P. 56(a) and attaches the signed, sworn
affidavit of a witness who testifies competently to facts sufficient to support
a judgment for Cindy. Cindy's motion will be granted unless Dave responds. See
Fed. R. Civ. P. 56(e) ("If the adverse party does not...respond, summary
judgment, if appropriate, shall be entered against the adverse party").

Dave thinks Cindy would rather settle for a lesser amount than go to trial.
Even if Cindy sticks it out through the trial, Dave thinks his attorney can
discredit Cindy's witness enough to win. He opposes Cindy's motion for summary
judgment simply by pointing to his answer and insisting that there is a "genuine
issue of material fact" as to his liability. The court's response? "Go
fry ice, Dave." Before entering judgment for Cindy, the court recites the
well-known refrain of Fed. R. Civ. P. 56(e) (sing along if you know the words):
<blockquote>
When a motion for summary judgment is made and supported as provided in this
rule, an adverse party may not rest upon the mere allegations or denials of
the adverse party's pleading, but the adverse party's response, by affidavits
or as otherwise provided in this rule, must set forth specific facts showing
that there is a genuine issue for trial.
</blockquote>
 Id.
Few would disagree with this result. But if our actors change hats and
become Cindy the Claimant and Dave the Debtor, and if the scene changes from
Dave defending a summary judgment motion to Dave bringing a claim objection,
the bankruptcy community is at once divided into two camps: those who regularly
bring such objections (i.e., debtors-in-possession, trustees, creditors'
committees and post-confirmation trustees) and those who regularly oppose them
(i.e., individual claimants).
Many objectors would say that Dave's general denial of liability2
is sufficient to put Cindy to her ultimate burden of proof—in other words,
Cindy's claim should be disallowed unless she comes forward to defend it. Most
claimants (and intellectually honest objectors) would say that Cindy can rest
on her proof of claim (POC) unless Dave does something more than deny
liability. Given the dearth of case law on point, however, they probably could
not articulate what that "something" is.3

I submit that a claimant who has properly filed a POC in a bankruptcy case
is in precisely the same position as a plaintiff who has properly filed for
summary judgment in an ordinary civil proceeding, and that the party objecting
to the POC is in the same position as a civil defendant resisting summary judgment.
As such, in order to put Cindy to her proof in bankruptcy, Dave must
make a showing that would be sufficient to put Cindy to her proof outside
of bankruptcy. The operative question when evaluating the sufficiency of a claim
objection thus becomes this: Would this be enough to get before a civil jury?
In Dave's case, clearly it would not.
The analogy seems a bit strained at first blush. Upon closer examination of
the legal standards governing claims and claim objections, however, it makes
perfect sense.
A Proof of Claim Is Like a Civil Complaint 
Most of us equate a POC with Official Bankruptcy Form 10. But stripped to its
bare essentials, a POC could be any "demand by [a] creditor on the bankruptcy
estate," "in writing" and "filed with the bankruptcy court,"
that "expresses an intent to hold the debtor liable for the debt"
so long as it is sufficient "to put the debtor and/or the court on notice
as to the existence, nature and amount of the claim (if ascertainable)."4
Sound familiar? It is the same "notice pleading" standard used to
evaluate the sufficiency of civil complaints in federal court.5 Perhaps
for this reason, courts "have traditionally analogized a creditor's claim
to a civil complaint...."6 Indeed, Cindy's Form 10 POC would
contain substantially the same information as her complaint: Cindy would check
"Goods sold" as the basis for her claim (Box 1), write "1/1/05
- 4/1/05" for the date the debt was incurred (Box 2), and write $75,001
on the "Unsecured Nonpriority Claim" line in Box 4 ("Classification
of Claim") and on the "(unsecured)" and "(Total)" lines
in Box 5 ("Total Amount of Claim at Time Case Filed").

Inherent Evidentiary Significance 
Okay, so Cindy's POC is similar to a civil complaint—who cares? Merely
providing "notice" of her claim would not entitle Cindy to summary
judgment outside of bankruptcy. She would need to produce prima facie
evidence of her claim in the form of admissions, answers to interrogatories,
depositions or affidavits of witnesses whose testimony would be admissible at
trial.7 To her POC, however, Cindy need only attach "supporting
documents" such as "purchase orders, invoices [or] itemized statements
of running accounts"—she does not even need to authenticate them!8
Cindy's POC is thus fundamentally different from her summary judgment motion,
no?
Not really. The key is the interplay of 11 U.S.C. §502(a), which deems
allowed any claim for which a POC is filed unless and until objection by
a party in interest, and Fed. R. Bankr. P. 3001(f), which provides that a properly
filed POC "constitute[s] prima facie evidence of the validity and
amount of the claim" (emphasis added). Thus, through the magic of the Bankruptcy
Code and Rules, Cindy's lowly POC becomes the functional equivalent of a valid
complaint and summary judgment motion supported by an affidavit. As in the civil
context, the burden of persuasion on the underlying claim remains on
Cindy, but her initial burden of production (i.e., of "going
forward" with evidence) has been satisfied.9 It is now incumbent
upon Dave (or another party in interest) to respond, otherwise judgment will
be entered for Cindy (i.e., her claim will be allowed).

This state of affairs reflects the considered policy judgment of Congress that,
so long as the claimant provides enough information "to enable the [objector]
to evaluate the claim's amount and validity and to challenge ...portions of
the claim that may be inaccurate,"10 shifting the initial burden
of production to the objector will "provide a fair and inexpensive procedure
for the proper determination of claims on the merits."11 Litigation
before the bankruptcy court is thus reserved for those situations where "there
is, in fact, a bona fide controversy over the amount of the debt."12
 Does this sound familiar? It is the same reason that

<blockquote>
[t]he Federal Rules of Civil Procedure have [since 1938] authorized motions
for summary judgment upon proper showings of the lack of a genuine, triable
issue of material fact. Summary judgment procedure is properly regarded not
as a disfavored procedural shortcut, but rather as an integral part of the
Federal Rules as a whole, which are designed "to secure the just, speedy
and inexpensive determination of every action."13 
</blockquote>
Like Affiants, Claimants Are Subject to Criminal Prosecution 
Hard-line objectors will likely bristle at the suggestion that the conclusory
allegations in Cindy's POC and unauthenticated "supporting documents"
appended thereto are on par with the signed, sworn affidavit of Cindy's witness
in support of her summary judgment motion. After all, an affiant offers his
or her testimony under pains and penalty of perjury. But if Cindy is lying,
denial of her claim is probably the worst that could happen to her. We all know
that a properly filed POC is entitled to some deference, but ascribing
it too much evidentiary significance will lead to abuse of the system,
won't it?
No more than one should expect outside of bankruptcy. As Form 10 warns would-be
claimants, knowingly filing a false POC in a bankruptcy case is a federal crime
which, like perjury, is punishable by fine, imprisonment of up to five years,
or both.14 Thus, individuals filing false or "overstated claims
in the expectation that the claims will not be scrutinized...do so at their
peril."15

Objectors Bear the Same Burden as Defendants Opposing Summary Judgment
Suppose that Cindy is well-represented and that, in addition to signing her
POC, she attaches accounts receivable summaries, invoices and bills of lading
suggesting she shipped $75,001 worth of goods to Dave. A fortiori, her
POC qualifies as prima facie evidence of her claim under Fed. R. Bankr.
P. 3001(f). Now, the burden
<blockquote>
 shifts to [Dave] to produce evidence sufficient to negate the prima facie
validity of the filed claim... In practice, [Dave] must produce evidence
which, if believed, would refute at least one of the allegations that is essential
to the claim's legal sufficiency. If [Dave] produces sufficient evidence
to negate one or more of the sworn facts in the [POC], the burden reverts
to [Cindy] to prove the validity of the claim by a preponderance of the evidence.16

</blockquote>
Compare this to Dave's burden under Fed. R. Civ. P. 56 once Cindy establishes
her prima facie case: "Such an affirmative showing shifts the burden
of production to [Dave] and requires [him] either to produce evidentiary
materials that demonstrate the existence of a 'genuine issue' for trial
or to submit an affidavit requesting additional time for discovery."17
 Looking at the standards side by side, it is difficult to imagine an evidentiary
showing that would suffice for Dave's claim objection but not for his opposition
to Cindy's summary judgment motion, and vice-versa. Likewise, it is difficult
to imagine an evidentiary showing that would fail for one purpose but
not for the other. Accordingly, in all material respects, the standards are
the same.
Conclusion

I offer this analogy to clarify our collective thinking on claim objections
and to point out that despite the relative lack of decisional law, we do not
wander on a darkling plain when it comes to claimants' and objectors' relative
burdens of production. These are familiar concepts of civil procedure that have
been expounded in the case law and treatises at least since the adoption of
the Federal Rules of Civil Procedure in 1938. To the extent we have any questions
about the sufficiency of a particular showing on a claim objection, I submit
that we can (and should) turn to these familiar sources for guidance.
<hr>
Footnotes
 1 Not convinced? See Fed. R. Civ. P. 84 ("The forms contained
in the Appendix of Forms are sufficient under the rules and are intended to
indicate the simplicity and brevity of statement which the rules contemplate"),
Appx. Form 5 ("Complaint for Goods Sold and Delivered"). 
2 Dave's well-pleaded objection would assert 11 U.S.C. §502(b)(1) as the
substantive ground for disallowance (i.e., "Cindy's claim is 'unenforceable
against' Dave and his property because Dave does not owe Cindy anything").
It is thus distinguishable from a "mere formal" objection premised
solely upon a perceived defect in the POC. See, e.g., In re Guidry, 321
B.R. 712, 716 (Bankr. N.D. Ill. 2005) (overruling objection that did not allege
a substantive basis for disallowance of claim under 11 U.S.C. §502(b) or
(d)).

3 For example, is it enough for Dave, in his objection, to proffer the affidavit
of his accountant who would testify that Dave's "books and records"
do not indicate any amounts owing to Cindy? See White, Bruce H. and Medford,
William L., "Omnibus Claims Objections: Debtor's Disagreement of the Amount
Is Not Enough," ABI Journal, June 2003 (arguing that such a showing
is inadequate, while acknowledging that no court has addressed the sufficiency
of a "books and records" objection). 
4 See In re American Classic Voyages Co., 405 F.3d 127, 131-32 (3d Cir.
2005) (quotations omitted) (considering elements of an "informal"
POC). 
5 See Fed. R. Civ. P. 8(a) (requiring "a short and plain statement
of the claim showing that the pleader is entitled to relief" and "a
demand for judgment for the relief the pleader seeks"); Conley v. Gibson,
355 U.S. 41, 47 (1957) (holding that the "short and plain statement"
must "give the defendant fair notice of what the plaintiff's claim is and
the grounds upon which it rests").

6 Smith v. Dowden, 47 F.3d 940, 943 (8th Cir. 1995); In the Matter of
American Anthracite & Bituminous Coal Corp., 22 F.R.D. 504, 507 (S.D.N.Y.
1958). 
7 See Fed. R. Civ. P. 56(c) & (e). 
8 See Official Bankruptcy Form 10, |7; Fed. R. Bankr. P. 3001(c).

9 See In re Allegheny Int'l. Inc., 954 F.2d 167, 173-74 (3d Cir. 1992).

10 In re Burkett, 329 B.R. 820, 827 (Bankr. S.D. Ohio 2005). 
11 In re Shank, 315 B.R. 799, 814 (Bankr. N.D. Ga. 2004). 
12 Id. at 814.

13 Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting
Fed. R. Civ. P. 1). 
14 Compare 18 U.S.C. §152(4) (filing false POC personally or "as
or through an agent, proxy, or attorney") with 18 U.S.C. §§1621
(perjury), 1623 (false statements under oath), 1001(2) (false statements in
a federal judicial proceeding). 
15 Shank, 315 B.R. at 815-16. 
16 Allegheny, 954 F.2d at 173-74 (emphasis added). Other courts have
said that Dave's evidence must be "admissible," In re Camp,
170 B.R. 610, 613 (Bankr. N.D. Ohio 1994), and "substantial," In
re Hemingway Transp., 993 F.2d 915, 925 (1st Cir. 1993), or "of probative
force equal to that of the creditor's proof of claim," In re Simmons,
765 F.2d 547, 552 (5th Cir. 1985) (citations ommitted).

17 See Celotex, 477 U.S. at 330 (Brennan, J., dissenting) (emphasis
added). See, also, Fed. R. Civ. P. 56(e) (requiring opposing party's
affidavits to "be made on personal knowledge" and to "set forth
such facts as would be admissible in evidence") (emphasis added).

Journal Authors

Patrick Allen Jackson

Journal Date

Thursday, June 1, 2006 - 12:00

Bankruptcy Rule

2006

3001