In re O'Brien

440 B.R. 654

In re Wayne O'BRIEN, Geraldine O'Brien, Debtor(s).

No. 10-10716 ELF.

United States Bankruptcy Court, E.D. Pennsylvania.

Oct. 1, 2010.

Stephen J. Ross, Ross & Schnarrs, P.C., Pottstown, PA, for Debtors.

William C. Miller, Philadelphia, PA, pro se.

OPINION

ERIC L. FRANK, Bankruptcy Judge.

I. INTRODUCTION

Presently before the court is the Debtors' Objection to the Proof of Claim filed by PRA Receivables Management, LLC ("PRA"). In its Proof of Claim, PRA asserts that it holds a claim of $13,024.46 as an assignee of a credit card account. The Debtors contest the allowance of the claim based upon the lack of documentation attached to the Proof of Claim. In particular, the Debtors assert that the claim should be disallowed because PRA did not attach documentary evidence to the proof of claim supporting: (a) the validity and amount of the debt or (b) its status as assignee of the account. ( See Debtors' Objection ¶¶ 4-5) (Doc. # 21).

At the hearing held on the Objection, neither party presented any evidence.

This contested matter presents issues that arise regularly in contested matters involving objections to proofs of claim:

• Was the proof of claim executed and filed in accordance with the rules of court, thereby imposing on the objecting party the initial burden of producing evidence to rebut the claim pursuant to Fed. R. Bankr.P. 3001(f)?

• If Rule 3001(f) does not apply, does the claimant have the initial burden of producing evidence in support of the claim or are there any circumstances in which the burden of producing evidence contesting the validity or amount of the claim shifts to the objector, notwithstanding the inapplicability of Rule 3001(f)?

Reasonable minds can differ (and have differed) on these issues.

In this case, I conclude that:

(1) PRA's proof of claim is not entitled to prima facie evidentiary status under Rule 3001(f) because its proof of claim does not comply with Rule 3001(c);

(2) although in some circumstances, a proof of claim may have prima facie evidentiary effect, even though it does not satisfy the requirements of Rule 3001(c) and (f), in this case, PRA's proof of claim is not entitled to prima facie evidentiary effect; and,

(3) because PRA's proof of claim lacked prima facie status either through Rule 3001(f) or otherwise, and PRA presented no further evidence in support of the claim, the claim will be disallowed.

II. BACKGROUND

Wayne and Geraldine O'Brien ("the Debtors") commenced this chapter 13 case on January 29, 2010. In their bankruptcy schedules, they listed a priority tax claim and a number of unsecured claims. (Doc. # 1, Schedules E and F). The creditor scheduled as holding the priority tax claim filed a claim in the amount of $9,118.82, asserting secured status rather than priority status. ( See Claim No. 6). Unsecured claims totaling $38,212.64 also have been filed with the court.

In their chapter 13 plan, the Debtors propose to: (a) pay their scheduled priority tax claim in full ( i.e., the claim filed as a secured claim) ¹ and (b) pay the allowed unsecured claims in full (100%) (due to the amount of non-exempt equity in their residence). See 11 U.S.C. §§ 1322(a)(2), 1325(a)(4).

PRA, as "agent of Portfolio Recovery Assocs. and successor in interest to SQUARETWOFINANCIAL (Bank of America)," filed an unsecured claims, Claim No. 3, in the amount of $13,024.46, on March 16, 2010. PRA's proof of claim ("the Proof of Claim") was executed by Carole E. Hardy, VP for Bankruptcy. It identifies Geraldine O'Brien as the Debtor.²

On its face, the Proof of Claim states that the basis for the claim is a "credit card" account and provides a four-digit number. However, it does not state whether that four-digit number is the account number used by the original creditor or the number which PRA uses to identify the account. The Proof of Claim further states that the Debtor may have scheduled the account as "Bank of America."

The Proof of Claim includes a one page attachment, titled "Supplemental Account Summary," which repeats some of the information found on the face of the Proof of Claim. The attachment also states that the account

• was purchased from SQUARETWOFINANCIAL on February 25, 2010

• has a loan date of 8/19/2005

• has a charge off date of 4/30/2008

• has a last payment date of 9/5/2007.

At the July 20, 2010 confirmation hearing, the Debtors acknowledged that their current plan is not adequately funded and that they must file an amended plan to increase the plan's funding in order to pay all allowed unsecured claims in full. However, they requested that the court first rule on two pending objections to claims so that they may calculate the necessary plan funding level before filing their amended plan. The court granted that request and continued the confirmation hearing.

One of the two claims objections pending on July 20, 2010 has since been sustained. The Debtor's other objection is to PRA Proof of Claim of $13,024.46. The hearing on the Debtors' Objection ("the Objection") to the Proof of Claim was held on July 20, 2010. The Debtors' counsel was present at the hearing, but neither the Debtors nor any PRA representative appeared. The Debtors filed a post-hearing Memorandum of Law in support of the Objection on August 17, 2010. (Doc. # 46). The matter is now ready for decision.

III. DISCUSSION

A. Burdens of Proof in Claims Objection Contested Matters—Generally

In analyzing objections to proofs of claim, bankruptcy courts must consider two primary sources: the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure.

Section 502(a) of the Code provides that a proof of claim "is deemed allowed, unless a party in interest ... objects." 11 U.S.C. § 502(a). In this Circuit, the Court of Appeals has held that a proof of claim

that alleges facts sufficient to support a legal liability to the claimant satisfies the claimant's initial obligation to go forward. The burden of going forward then shifts to the objector to produce evidence sufficient to negate the prima facie validity of the filed claim.

In re Allegheny Int'l, Inc., 954 F.2d 167, 173-74 (3d Cir.1992). The principle expressed in Allegheny Int'l is rooted in past practice under the former Bankruptcy Act.³

Fed. R. Bankr.P. 3001(f) addresses the same subject as Allegheny Int'l, i.e., which party has the burden of going forward at ahearing on an objection to a proof of claim. Rule 3001(f) provides:

A proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim.

If a claimant complies with rules of court and its proof of claim achieves prima facie evidentiary status through Rule 3001(f), the burden of going forward with evidence contesting the validity or amount of the claim shifts to the objector.⁴ Rule 3001(f), too, can be traced to the former Bankruptcy Act.⁵

B. The Debtors' Contentions

At the hearing on the Objection, the Debtors did not present any evidence in support of the Objection and PRA did not appear. With no evidence offered by either party at the hearing, the decision in this case depends on the allocation of the burden of proof.

The Debtors contend that the burden of proving the validity and amount of the Proof of Claim remains with PRA because the Proof of Claim does not conform with Fed. R. Bankr.P. 3001(c) and the instructions that are part of Official Form 10.⁶ The Debtors argue that the Proof of Claim is nonconforming because it fails to include the documentation required by Rule 3001. According to the Debtors, it follows that the Proof of Claim lacks prima facie evidentiary status as to its validity, see Fed. R. Bankr.P.3001(f), and should be disallowed upon objection by a party in interest.

In short, the Debtors contend that once it is determined that a proof of claim is not entitled to prima facie status under Rule 3001(f), as a matter of law, the burden of production remains on the claimant and, if the claimant does not come forward with additional evidence to support the claim,the claim should be disallowed based on nothing but the objection alone.

C. Fed. R. Bankr.P. 3001

1.

I begin by considering whether the Proof of Claim is entitled to prima facie evidentiary effect under Rule 3001(f). This requires a determination whether the Proof of Claim was "executed and filed in accordance with" the rules of court. See Fed. R. Bankr.P. 3001(f). The relevant rules of court include Rule 3001(a)-(e).

Rule 3001(a) requires that the proof of claim "conform substantially to the appropriate Official Form," which is Official Form No. 10. Rule 3001(b) requires that the proof of claim be executed by the creditor or the creditor's authorized agent. Rule 3001(c) provides that if a claim is "based on a writing," a copy of the writing be attached to the proof of claim unless it has been lost or destroyed, in which case a statement of the "circumstances of the loss or destruction" must be filed with the claim. Rule 3001(d) provides that if the claimant asserts that it holds a security interest in property of the debtor, the proof of claim "s hall be accompanied by evidence that the security interest has been perfected." Rule 3001(e) addresses certain obligations of holders of claims that were transferred to the holder.⁷

Official Form No. 10, effectively incorporated through Rule 3001(a), appears to relax the requirements of Rule 3001(c). Paragraph 7 initially instructs the claimant to attach copies of documents "that support the claim, such as promissory notes, purchase order invoices, itemized statements of running accounts, contracts, judgments, mortgages, and security agreements." It further states, without qualification, " You may also attach a summary." (emphasis added).⁸ See generally 6 Bankr.Service L. Ed. § 53:33 (West 2010) ("Bankruptcy Service") (collecting cases involving satisfaction of Rule 3001(c) through attachment of a summary for credit card claims).

2.

There are many reported decisions involving objections to proofs of claim based...