In Re: Outboard Marine Corporation, Debtor. Appeal Of: Travis Boats & Motors, Incorporated, Doing Business as Travis Boating Center

Citations: 386 F.3d 824; 2004 U.S. App. LEXIS 21580; 43 Bankr. Ct. Dec. (CRR) 206; 2004 WL 2332131Docket: 04-1009

Court: Court of Appeals for the Seventh Circuit; October 18, 2004; Federal Appellate Court

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Travis Boats, Motors, Inc. appealed a bankruptcy court's order disallowing its claim against Outboard Marine Corporation (OMC) in a Chapter 7 bankruptcy proceeding due to the late filing of its proof of claim. The claims bar date was set for November 15, 2002, with specific instructions that claims must be mailed to a designated post office box and received by the OMC claims agent by that date. Travis Boats faxed its claim to the trustee's counsel on the deadline but mailed it to the claims agent, which arrived after the bar date, on December 9, 2002. The bankruptcy court sustained the objection to the claim as untimely, a decision later affirmed by the district court. However, the appellate court affirmed the bankruptcy court's timeliness determination but reversed the decision to disallow the claim. The background included OMC’s initial Chapter 11 filing on December 22, 2000, the conversion to Chapter 7 on August 20, 2001, and the appointment of a claims agent responsible for cataloging claims. A notice was sent to creditors, emphasizing the necessity of timely filing to ensure potential payment. Despite the lack of a fax number in the notice, Travis Boats attempted to file via fax and also mailed its claim, ultimately leading to the court's decision on the matter.

Counsel for Travis Boats received a fax number after inquiring via the provided telephone number in the Notice. They faxed a proof of claim, which was then mailed by the trustee's counsel to the OMC claims agent, who assigned Claim No. 5293 upon receipt on November 21, 2002. The trustee later filed an omnibus objection to multiple claims, including Claim No. 5293, arguing they were untimely. Travis Boats responded to the objection regarding Claim No. 5293 but did not contest the objection to Claim No. 5354. Following a hearing, the bankruptcy court upheld the trustee's objection to both claims. Travis Boats subsequently sought reconsideration, which was denied, and the decision was affirmed on appeal.

On appeal, Travis Boats contends it complied with the Notice of Bar Date by faxing its claim on time, or alternatively, that the faxed claim should be considered timely under Rule 5005(c) of the Federal Rules of Bankruptcy Procedure, or classified as an informal claim. They also argue that the lower courts erred in disallowing the claim instead of subordinating it under 11 U.S.C. § 726(a)(3). The appellate court noted that it reviews legal conclusions de novo and factual findings for clear error. 

Travis Boats challenged the bankruptcy court's ruling on the untimeliness of its proof of claim, asserting that the Notice did not specify an exclusive filing method. However, the Notice explicitly required claims to be mailed to a designated post office box by November 15, 2002, without provision for fax submissions. As the proof of claim was faxed and subsequently mailed, leading to receipt six days post-deadline, the bankruptcy court determined it was untimely, aligning with the Notice's explicit instructions.

Travis Boats' late telephone call to the OMC claims agent did not affect the bankruptcy court's determination regarding the timeliness of its proof of claim. On or around the Bar Date, Travis Boats attempted to contact the law firm listed in the Notice but only reached a voicemail system and then an operator, seeking the firm's fax number to submit its claim. The court concluded that this late fax submission did not comply with the Notice of Bar Date, which governs claim filings, and therefore was not timely. 

Travis Boats also invoked Bankruptcy Rule 5005(c), which allows for equitable backdating of claims erroneously delivered, and argued that its fax constituted an informal proof of claim. However, these arguments were waived because they were raised only in a motion for reconsideration. Even if considered, the bankruptcy court would still affirm its decision against Travis Boats, noting that the company was aware of the Bar Date and was represented by counsel, which undermined its claims of confusion. The court characterized Travis Boats' situation as a "self-inflicted wound," as it had also mailed a duplicate claim that arrived after the Bar Date.

Although Travis Boats' claim of $1.1 million is relatively small compared to the $3.5 billion in total claims, it could still impact the distribution to timely claimants. The court emphasized the importance of adhering to claims procedures to maintain efficient judicial administration in bankruptcy cases. 

Finally, while the bankruptcy court disallowed Travis Boats' late claim instead of subordinating it under 11 U.S.C. § 726(a)(3), the district court deemed the issue moot due to the potential exhaustion of OMC's assets by timely claims. However, lacking clear evidence regarding OMC's assets, the appellate court reversed the disallowance decision and determined that Travis Boats' claim should be subordinated to the timely claims instead. The conclusion affirms the bankruptcy court's ruling on the untimeliness of the claim while reversing the decision to disallow it, ordering instead that it be subordinated.