Class 4 Bankruptcy, Spring, 2009 Allowance and Disallowance of Claims Randal C. Picker Leffmann...
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Transcript of Class 4 Bankruptcy, Spring, 2009 Allowance and Disallowance of Claims Randal C. Picker Leffmann...
Class 4Bankruptcy, Spring, 2009
Allowance and Disallowance of Claims
Randal C. PickerLeffmann Professor of Commercial Law
The Law School
The University of Chicago
773.702.0864/[email protected] © 2005-09 Randal C. Picker. All Rights Reserved.
April 21, 2023 Copyright © 2005-09 Randal C. Picker 2
501
Filing of proofs of claims or interests (a) A creditor or an indenture trustee may
file a proof of claim. An equity security holder may file a proof of interest.
(b) If a creditor does not timely file a proof of such creditor’s claim, an entity that is liable to such creditor with the debtor, or that has secured such creditor, may file a proof of such claim.
April 21, 2023 Copyright © 2005-09 Randal C. Picker 3
502
Allowance of claims or interests (a) A claim or interest, proof of which is filed
under section 501 of this title, is deemed allowed, unless a party in interest, including a creditor of a general partner in a partnership that is a debtor in a case under chapter 7 of this title, objects.
April 21, 2023 Copyright © 2005-09 Randal C. Picker 4
502 (cont.)
Allowance of claims or interests (cont.) (b) Except as provided in subsections (e)(2),
(f), (g), (h) and (i) of this section, if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that –
April 21, 2023 Copyright © 2005-09 Randal C. Picker 5
502 (cont.)
Allowance of claims or interests (cont.) (1) such claim is unenforceable against the
debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured;
(2) such claim is for unmatured interest;
April 21, 2023 Copyright © 2005-09 Randal C. Picker 6
502 (cont.) Allowance of claims or interests (cont.)
(6) if such claim is the claim of a lessor for damages resulting from the termination of a lease of real property, such claim exceeds -
(A) the rent reserved by such lease, without acceleration, for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease, following the earlier of -
• (i) the date of the filing of the petition; and• (ii) the date on which such lessor repossessed, or the lessee
surrendered, the leased property; plus (B) any unpaid rent due under such lease, without
acceleration, on the earlier of such dates;
April 21, 2023 Copyright © 2005-09 Randal C. Picker 7
502 (cont.) Allowance of claims or interests (cont.)
(b)(7) if such claim is the claim of an employee for damages resulting from the termination of an employment contract, such claim exceeds -
(A) the compensation provided by such contract, without acceleration, for one year following the earlier of -
• (i) the date of the filing of the petition; or• (ii) the date on which the employer directed the employee to
terminate, or such employee terminated, performance under such contract; plus
(B) any unpaid compensation due under such contract, without acceleration, on the earlier of such dates;
April 21, 2023 Copyright © 2005-09 Randal C. Picker 8
Borne Chemical
Core Facts Simplifying, Rolfite has a claim in a pending
lawsuit against Borne Borne files for Chapter 11 Rolfite gets relief from the stay to pursue
the lawsuit outside of bankruptcy Bankruptcy court temporarily disallows
claims pending state court resolution
April 21, 2023 Copyright © 2005-09 Randal C. Picker 9
Borne Chemical
Rolfite tries to block confirmation of plan of reorganization for Borne
When rejected, appeals to district court, which vacates disallowance order and requires estimation hearing
B Ct estimates claim at zero, again disllows until state case done and “in effect requir[es] a waiver of the discharge of the Rolfite claims”
April 21, 2023 Copyright © 2005-09 Randal C. Picker 10
502 (cont.)
Allowance of claims or interests (cont.) (c) There shall be estimated for purpose of
allowance under this section - (1) any contingent or unliquidated claim, the fixing
or liquidation of which, as the case may be, would unduly delay the administration of the case; or
(2) any right to payment arising from a right to an equitable remedy for breach of performance.
April 21, 2023 Copyright © 2005-09 Randal C. Picker 11
502 (cont.)
Allowance of claims or interests (cont.) (j) A claim that has been allowed or disallowed
may be reconsidered for cause. A reconsidered claim may be allowed or disallowed according to the equities of the case. Reconsideration of a claim under this subsection does not affect the validity of any payment or transfer from the estate made to a holder of an allowed claim on account of such allowed claim that is not reconsidered,
April 21, 2023 Copyright © 2005-09 Randal C. Picker 12
502 (cont.) but if a reconsidered claim is allowed and is of the
same class as such holder’s claim, such holder may not receive any additional payment or transfer from the estate on account of such holder’s allowed claim until the holder of such reconsidered and allowed claim receives payment on account of such claim proportionate in value to that already received by such other holder. This subsection does not alter or modify the trustee’s right to recover from a creditor any excess payment or transfer made to such creditor.
April 21, 2023 Copyright © 2005-09 Randal C. Picker 13
The Estimation
Two Approaches B Ct Approach
Assess weight of evidence: {0,100}, {40,60}, {51,49}, {100,0}
Based on weight, apply standard of proof rule: preponderance, clear and convincing, beyond a reasonable doubt
If proof standard isn’t met, disallow claims
April 21, 2023 Copyright © 2005-09 Randal C. Picker 14
The Estimation
If proof standard met, allow claims in full at estimated liablity amount?
Rolfite Approach Take point estimate of weight, say 40% Multiply that time estimated liability Use that as allowed estimate for claim
April 21, 2023 Copyright © 2005-09 Randal C. Picker 15
The Estimation
Key Question What is at stake? Distributions to creditors?
Control over the proceeding?
April 21, 2023 Copyright © 2005-09 Randal C. Picker 16
AH Robins
Core Facts Robins faces mass tort litigation from
production of Dalkon Shield Prior to bankruptcy, wide range in punitive
damage awards against company Tries to implement limited-fund class action
and fails Files for bankruptcy
April 21, 2023 Copyright © 2005-09 Randal C. Picker 17
The Fight over Punitive Damages
The Players Claimants Committee
Represents current claimants of Robins, favors recovery of punitive damages
Future Tort Claimants Committee Punitives should be allowable, but
subordinated to other unsecured claims
April 21, 2023 Copyright © 2005-09 Randal C. Picker 18
The Fight over Punitive Damages
Unsecured Creditors Committee Favors disallowance, and if not,
subordination under 510(c) Equity Committee
Favors disallowance Robins/The Debtor
Favors disallowance What explain the positions of the parties?
April 21, 2023 Copyright © 2005-09 Randal C. Picker 19
The Robins Reorganization
Key Features Establishes trust for resolution of current
and future torts claims Allocates value to the trust Plan contemplates $700 million distribution
to shareholders
April 21, 2023 Copyright © 2005-09 Randal C. Picker 20
Assessing Disallowance of Punitive Damage Claims
Key Questions Does 502 allow the bankruptcy court to
disallow punitive damage claims? Does 105 make that possible? The inherent
equitable power of the bankruptcy court? How should we assess the court’s reading
of Pepper, Heiser and Vanston?
April 21, 2023 Copyright © 2005-09 Randal C. Picker 21
Assessing Disallowance of Punitive Damage Claims
What do we make of 510(c) and 726(a)(4)? Again, how should we reflect state law in
bankruptcy? How should we account for the fact that
states differ in their approaches to punitive damages and different tort victims will have differing rights under state law?
April 21, 2023 Copyright © 2005-09 Randal C. Picker 22
510(c)
Subordination (c) Notwithstanding subsections (a) and (b) of this
section, after notice and a hearing, the court may - (1) under principles of equitable subordination,
subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed claim or all or part of an allowed interest to all or part of another allowed interest; or
(2) order that any lien securing such a subordinated claim be transferred to the estate.
April 21, 2023 Copyright © 2005-09 Randal C. Picker 23
105(a)
Power of Court The court may issue any order, process, or
judgment that is necessary or appropriate to carry out the provisions of this title.
April 21, 2023 Copyright © 2005-09 Randal C. Picker 24
726 Distribution of property of the estate (cont.)
(a)(4) fourth, in payment of any allowed claim, whether secured or unsecured, for any fine, penalty, or forfeiture, or for multiple, exemplary, or punitive damages, arising before the earlier of the order for relief or the appointment of a trustee, to the extent that such fine, penalty, forfeiture, or damages are not compensation for actual pecuniary loss suffered by the holder of such claim;