Court: District Court, N.D. Illinois; September 27, 2017; Federal District Court
Appellants Paul A. Liva, Jr. and Lori A. Liva have appealed a bankruptcy court decision that denied their Motion to Allow Proof of Claims, which aimed to establish that they had filed informal proofs of claims entitling them to funds from the bankruptcy estate of Peregrine Financial Group, Inc. (PFG). The bankruptcy court ruled against them, stating that they did not provide sufficient evidence of any communications or actions that could qualify as informal proofs of claims. On appeal, Appellants argue that a collection of documents exchanged with various entities constitutes such informal claims. The court affirms the bankruptcy court's decision.
PFG, a futures commission merchant, filed for Chapter 7 bankruptcy in July 2012, appointing Ira Bodenstein as the Chapter 7 Trustee. As unsecured creditors, the Appellants were among over 24,000 customer accounts affected. The Trustee filed a motion for interim distribution to approximately 14,000 futures customers, including Appellants, to provide early access to assets. The bankruptcy court approved this motion, allowing the Trustee to bulk transfer accounts to Vision Financial Markets, LLC, which would distribute the funds. Following the approval, Appellants completed necessary forms to receive their interim distribution and subsequently received checks from Vision amounting to about one-third of their account balances.
The Trustee initiated a process for creditors to file proofs of claims against the bankruptcy estate, with an order from the bankruptcy court designating Rust Consulting/Omni Bankruptcy as the claims agent and setting a claims-bar date of November 16, 2012. Notice was served to all claimants, emphasizing that PFG customers were required to file a claim to receive distributions from the bankruptcy estate. Claims could be submitted electronically or via certified mail. On November 5, 2012, the Trustee requested an extension of the claims-bar date due to potential confusion among customers, which the court granted, extending the deadline to December 14, 2012. A second notice reiterated the necessity of filing a claim regardless of any funds transferred to another entity. Despite receiving these notices, Appellants did not file any claims.
In November 2013, upon discovering additional distributions to futures account holders and not receiving their share, Appellants were informed that their lack of filed claims was the reason for their exclusion. They subsequently filed a Motion to Allow Proof of Claims, which the Trustee opposed. Appellants claimed to have timely filed proofs of claim on October 5, 2012, but Rust Omni acknowledged only one claim from Paul Liva, Sr., rejecting claims from Appellants due to lack of proof of submission. The bankruptcy court concluded that Appellants failed to provide evidence of timely filing, as required by the court's order. Furthermore, the court found that Appellants did not meet the criteria for establishing an informal proof of claim, given the absence of any relevant communications or filings prior to the bar dates. This led to the current appeal.
District courts act as appellate courts for bankruptcy court appeals, reviewing findings of fact for clear error and legal conclusions de novo. The informal proof-of-claim doctrine allows bankruptcy courts to accept late formal claims as amendments to timely informal claims. This doctrine is equitable and is assessed under an abuse of discretion standard. A bankruptcy court abuses its discretion if its decision is based on incorrect legal principles, clearly erroneous facts, or lacks evidentiary support.
In Chapter 7 bankruptcy, unsecured creditors must file formal proofs of claim by the claims-bar date; otherwise, their claims are subordinated. However, if a creditor files a timely informal claim that does not meet strict formalities, the bankruptcy court can treat it as a valid claim if it communicates the existence, nature, and amount of the claim and indicates the creditor's intent to hold the debtor liable. The Seventh Circuit has not established specific requirements for informal proofs of claim but considers various factors, including the need for written documentation and a clear demand for payment. Ultimately, there must be evidence of the creditor's intent to assert a claim against the debtor, ensuring all parties are sufficiently notified.
Appellants argue that three documents—a Distribution Motion, completed forms submitted to Vision, and an Interim Distribution payment—collectively serve as an informal proof of claim. They assert that the Distribution Motion indicates the Trustee’s and bankruptcy court’s acknowledgment of their claims, while the submitted forms and received payments demonstrate their intent to hold PFG liable. Appellants compare their situation to that of another claimant, Damien Ryan, who successfully established an informal proof of claim through prior communication with Rust Omni, which included specific account details and a clear intention to assert his claim. However, the bankruptcy court found a critical distinction: Appellants failed to provide any evidence of communication with the claims agent or any relevant party, despite claiming such interactions occurred. The court noted that Appellants could not produce any emails to substantiate their assertions, and Rust Omni had no record of communications from them. Consequently, the court denied Appellants’ motion for an informal proof of claim, determining that their unsupported claims did not warrant an evidentiary hearing. The appellate court agreed with the bankruptcy court's findings, concluding that Appellants did not present sufficient evidence of communication to support their claim.
Two out of three documents claimed by the Appellants as informal proofs of claim were issued to them and over 20,000 other customers by the Trustee and Vision. The case In re Griffin Trading Co. established that a trustee's motion seeking to use estate assets for customer claims does not qualify as an informal proof of claim since it lacks evidence of creditors' intent to hold the estate liable. Allowing ordinary documents from a debtor or trustee to serve as informal proofs of claim could disrupt the efficient management of bankruptcy cases, especially in large proceedings like this one. PFG had 14,000 eligible customers for an Interim Distribution, many of whom likely submitted similar documents to those cited by the Appellants, raising concerns about fairness to creditors who filed timely claims. The precedent set in Matter of Stoecker emphasizes that informal proofs of claims should not harm other creditors. The Appellants' documents did not demonstrate a clear request for payment or intent to hold the debtor liable, justifying the bankruptcy court's discretion in ruling against the Appellants. The court affirmed that the Appellants did not file informal proofs of claims and noted their failure to provide evidence of relevant email correspondence with PFG’s claims agent or Vision. Additionally, the notice referenced in the appendices was identified as a draft submitted by the Trustee for court approval.
An affidavit from a Rust Omni representative indicates that PFG customers received claims-bar notices via email, which Appellants do not dispute, although such emails were not included in the exhibits. The court presumes that service through email was received and assumes the substance of the notice was consistent with the draft notice in the record. Paul Liva, Sr. is not a party to the case. The bankruptcy court found no disputed facts warranting an evidentiary hearing. Appellants, in their Reply Brief, suggest that submitting forms to Vision constitutes an informal proof of claim, though it is unclear if this is a new argument raised on appeal. The bankruptcy court's decision did not rely on the documents Appellants now reference but rather on the absence of any documents fulfilling the criteria for an informal proof of claim, leading to the conclusion that their argument fails for the same reasons outlined in the court's ruling.
