District Court Denies Plaintiffs' Counsel's Appeal, Finds Claimants' Post Bar Date Ratification of Proofs of Claim to Be Ineffective
Mission Towers v. W.R. Grace, C.A. No. 07-287 (D. Del. Dec. 6, 2007) (Senior Judge Ronald L. Buckwalter)
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 the 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 United States District Court for the District of Delaware affirmed.
In an opinion that about which we blogged earlier this year, 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 subsequent ratification. However, the Bankruptcy Court, relying on U.S. Supreme Court precedent, held where there is a deadline to act, 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 as 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 forty-four claims.
On appeal to the United States District Court for the District of Delaware, the District Court affirmed. In so doing, the District Court rejected Speights’ contention that the firm was acting as putative class counsel, and the claims should have been deemed timely as proofs of claim filed by class counsel. Instead, the District Court found that the claims were filed on behalf of individuals, and based on principles of agency law, Speights must have had authority to act on behalf of each claimant at the time Speights filed a claim on such claimant’s behalf.
The claimants also argued that they were known claimants who were required to have been provided with actual notice of the proof of claim bar date. The District Court disagreed, finding that because of the enormous complexity of this case and the vast numbers of potential claimants, the Bankruptcy Court crafted a bar date order with the participation of the parties, the attorneys and the Official Committee of Asbestos Property Damage Claimants that implemented a workable notice mechanism. Under that order, claimants’ attorneys, such as Speights, were responsible for advising their clients by the bar date, as they would best know the identities of those who might be interested in filing property damage claims.
The District Court also denied the claimants permission to conduct discovery on the issue of whether they were known creditors. Although their identities appeared not to be reasonably ascertainable from the debtors’ records, the District Court held Speights certainly knew of them. In fact, Speights argued that they had a fiduciary duty to file proofs of claim on behalf of the claimants. Accordingly, the District Court gave no credence to Speights’ argument that it had no obligation to notify the claimants of the bar date or ensure they received notice.
