Court Disallows Claim, Finding That Doctrine of Ratification Did Not Rescue Proofs of Claim Filed Before Bar Date by Counsel, Where Ratification Came After Bar Date
In re W.R. Grace & Co., 366 B.R. 302 (Bankr. D. Del. 2007) (Judge Judith K. Fitzgerald)
The law firm of Speights & Runyan filed thousands of claims on behalf of creditors in the W.R. Grace & Co. bankruptcy. The debtors moved to expunge and disallow 71 of these claims, contending that Speights & Runyan lacked express authority to file the proofs of claim as of the time that they were filed. The United States Bankruptcy Court for the District of Delaware held that, although a claimant may authorize the filing of a claim after it is filed, if the ratification occurs after the bar date has passed, that ratification is insufficient to make the claim timely filed. Accordingly, because authorization for these 71 claims was not established as of the deadline for filing proofs of claim, the Court expunged and disallowed the claims.
The debtors, W.R. Grace & Co. and its affiliates, moved to disallow 71 property damages claims filed and signed by the law firm of Speights & Runyan for which Speights failed to establish that authority to execute the proofs of claim existed prior to the March 31, 2003 claim bar date. In each of these cases, written authority was either undated or dated after the bar date.
The debtors argued that the party signing the proof of claim must have express authority to do so at the time of the filing. Speights contended that, under Fed. R. Bankr. P. 3001(b), the requirement that a proof of claim be signed by an authorized agent can be satisfied under the doctrine of ratification.
The attorney-client relationship is an agent-principal relationship that is subject to the ratification doctrine. Under this doctrine, the agent does not need to have prior authority before acting on behalf of the principal, but can ratify the agent’s act after the fact. The United States Bankruptcy Court for the District of Delaware rejected the debtors’ argument that actual authority must have existed at the time the proofs of claim were executed, finding that a proof of claim may be saved by ratification. However, the Court, relying on U.S. Supreme Court precedent, held where there is a deadline to act, such as here, the ratification must take place by the deadline. Because the claimants would not have been permitted to file proofs of claim after the bar date, the act of ratifying such actions after the bar date cannot be used a means of extending the bar date for such claimants. In so holding, the Court noted that if ratification after the bar date were to be permitted, it would undermine the purposes of a bar date by extending indefinitely the time in which creditors might make good their assertion of claims, thereby disrupting the claims process. Therefore, the Court disallowed and expunged the 71 claims.
Note: Since the Court entered its order expunging these claims, the claimants have filed notices of appeal. Also, three claimants filed a motion for reconsideration, contending that, at the hearing in this matter, the debtors did not seek to expunge their claims for which evidence of timely authorization had been presented [Docket No. 15421]. As of the date hereof, the Court has not taken action with respect to that motion.
