Bankruptcy judge correctly sustained objection to creditor's proof of claim because the creditor's faxed claim was filed after deadline for filing proof-of-claim forms.
The 7th U.S. Circuit Court of Appeals has affirmed a ruling by U.S. District Judge Matthew F. Kennelly of the Northern District of Illinois, Eastern Division.
After marchFIRST Inc. filed Chapter 7 bankruptcy proceedings, the company mailed a notice of bankruptcy to its creditors. The notice stated that the deadline for proof of claims against its estate was Oct. 11, 2001. The notice listed two addresses where creditors could send their proofs of claim — one address for claims submitted by mail and another for claims submitted by hand or overnight courier.
Attached to each notice was a personalized proof-of-claim form that stated in capital letters: "The original of this proof of claim must be sent so that it is received on or before 4:00 p.m. Eastern Time, on October 11, 2001."
Avent Inc., an unsecured creditor of marchFIRST, faxed the proof-of-claim form to marchFIRST's claims agent with a cover sheet at 4:43 p.m. on Oct. 11. A courier delivered Avent's original claim form the next day.
Andrew Maxwell, the trustee of marchFIRST's estate, objected to Avnet's claim because it was not timely on the basis that the original form didn't arrive until one day after the deadline. The bankruptcy court sustained the objection and subordinated Avnet's claim. The district court affirmed.
On appeal, Avnet argued that the bankruptcy court should have accepted its faxed submission because marchFIRST's notice didn't expressly forbid claimants from faxing their proof-of-claim forms. The appeals court said the bankruptcy court rejected this argument because marchFIRST's notice listed two ways for claimants to submit their claims: by mail or by hand. The notice didn't list a fax number as an alternate method of submitting a claim form.
"In a case with almost identical facts, we held that transmission of proof of claim by fax was inappropriate," the appeals court said. "Transmission by facsimile was improper, and the bankruptcy court correctly rejected Avnet's argument."
The appeals court also rejected Avnet's argument that the bankruptcy court erred by not exercising its discretion under Rule 5005(c) of the Federal Rules of Bankruptcy Procedure to find its claim timely. The rule provides that the bankruptcy court "may order that a paper erroneously delivered shall be deemed filed with the clerk or transmitted to the U.S. trustee as of the date of its original delivery."
Avnet argued that its faxed claim constituted an "erroneous delivery" under Rule 5005(c) but the appeals court disagreed. The appeals court said that the rule applies only when a claimant delivers a document to the wrong recipient — "for example, the trustee instead of the bankruptcy clerk or vice versa."
The appeals court said the rule doesn't address situations in which the claimant makes a delivery using the wrong "method" and "we are unaware of a single case in which a court relied on this rule to excuse a claimant who delivered his claim to the correct recipient using the wrong method."
In addition, the appeals court said that Avnet, "a sophisticated claimant with benefit of counsel," didn't give the bankruptcy court any reason to believe that the equities weighed in its favor and didn't explain why it waited until 43 minutes after the deadline to fax a copy of its proof of claim.
In re marchFIRST Inc., No. 06-2738. Judge Diane S. Sykes wrote the court's opinion with Judges Kenneth F. Ripple and Terence T. Evans concurring. Released July 17.