Those in the bankruptcy world know that proofs of claim are important. Most also know that the standards for proofs of claim are pretty low. The proof need not lay out all the intricacies of the creditor’s claim, but it instead must provide information sufficient to put the debtor on notice that a claim is being asserted against it, as well as the amount of the claim and the date such claim arose. Earlier this Fall, the Delaware courts reminded creditors that these proofs of claim standards, while low, do exist and cannot be ignored.
In the Delaware District Court’s decision in Rubino v. Spansion (In re Spansion Inc.), No. 13-388, 2013 WL 5730575 (D. Del. Oct. 22, 2013), the district court was asked to consider whether the bankruptcy court erred in denying a creditor’s motion seeking payment of his claim against the debtor Spansion Inc. Before Spansion filed for bankruptcy, creditor Mr. Rubino had filed an employment discrimination lawsuit against it for failing to hire him for a general mechanic position. The litigation against Spansion was stayed upon the bankruptcy filing.
Mr. Rubino filed a motion seeking relief from the stay to proceed with its lawsuit against Spansion, but the motion was denied. Mr. Rubin went on to prosecute his employment discrimination lawsuit against the other defendants. That lawsuit was ultimately dismissed after a defendant sought summary judgment, and Mr. Rubino was unable to demonstrate a prima facie case of discrimination.
Meanwhile, in the Spansion bankruptcy case, the court established a deadline for the filing of claims against Spansion (referred to as the “bar date”). Creditors asserting a claim different from what the debtor has scheduled are required to file proofs of claim to put the debtor and the court on notice as to the existence of the claim. Failure to file a proof of claim bars these creditors from participating in the debtor’s reorganization; including voting on the plan or receiving a distribution on that amount of the claim in excess of what is scheduled.
Spansion referred to Mr. Rubino’s lawsuit in its schedules, noting it as a contingent, unliqudiated, and disputed “litigation claim” in an unknown amount. This characterization required Mr. Rubino to file a proof of claim. While Mr. Rubino asserted he mailed a proof of claim to the claims agent, the claims agent had no record of receiving Mr. Rubino’s proof of claim and his proof of claim was neither recorded nor reflected on the claims register.
In December 2012, Mr. Rubino filed a motion seeking payment of his claim. The bankruptcy court denied the motion, noting among other things that Mr. Rubino had failed to rebut Spansion’s assertion that there was no evidence he had ever submitted a proof of claim. Any claim for payment was accordingly time-barred. Mr. Rubino appealed.
On appeal, the district court agreed that Mr. Rubino had failed to demonstrate that he had timely submitted a formal proof of claim. However, the district court then went on to consider whether Mr. Rubino’s motion for relief from the stay, filed before the bar date, could be considered an informal proof of claim. Under the Third Circuit’s five-part test, a document serving as an “informal” proof of claim must: (1) be in writing; (2) contain a demand by the creditor on the bankruptcy estate; (3) express an intent to hold the debtor liable for the debt; (4) be filed with the bankruptcy court; and (5) be justified in light of the facts and equities of the case. A document satisfying this test must be sufficient to put either the debtor and/or the court on notice as to the existence of the claim and contain generally the same substantive information as a formal proof of claim.
Applying this standard to Mr. Rubino’s stay relief motion, the district court held that the motion failed to qualify as an informal proof of claim because it failed to contain an expression of intent to hold Spansion liable for any unsecured debt. The district court therefore affirmed the bankruptcy court’s order.
Proofs of claim are not difficult documents to prepare but their simplicity should not undercut their importance. If a creditor fails to timely file a claim, and such failure is not the result of “excusable neglect,” the creditor may not be able to recover anything from the debtor. It is a harsh rule, but one that is followed unfailingly by courts to assist debtors in addressing claims against them in their bankruptcy cases.
Second, while proofs of claim can be simple documents, they must set forth sufficient information to provide the debtor with notice of the claim against it. As demonstrated in Rubino v. Spansion, courts review very carefully whether sufficient information is provided in whatever document it is asked to consider. A statement written on a napkin may contain sufficient information to qualify as an informal proof of claim. A motion filed with the court may not.