by Richard E. Weltman
{3:36 minutes to read} When representing a creditor in a bankruptcy case, it helps when counsel understands that being told it is “too late” to file a claim may not be the last word. The filing of a late claim may still be possible in certain circumstances.
Our client, a personal injury attorney, represented the administrator of his wife’s estate in a wrongful death lawsuit. The decedent was severely burned when her clothing caught fire. She ultimately succumbed to her burn injuries. A suit was commenced against the apparel manufacturer in state court. Unknown to the parties, the defendant manufacturer had sought chapter 11 relief approximately one year after the decedent’s death, and a year prior to the lawsuit. The defendant defended the action for months before finally alerting the court and counsel to the pending bankruptcy case, effectively staying the action.
By this time, the bankruptcy court’s claims bar date had long since passed. The chapter 11 plan was confirmed and the final decree closing the case had been entered. It was only after the case was closed that we were engaged to determine how best to obtain authorization for the late claim to be filed and allowed. Our client had previously sought the debtor’s consent to the modification of the discharge injunction to allow the state court action to continue. The debtor refused. It seemed that neither the bankruptcy law, nor the terms of debtor’s confirmed chapter 11 plan offered a successful outcome.
We were not deterred. Our lawyers closely examined the bankruptcy case docket and found that other non-bankruptcy personal injury actions were permitted to proceed against the debtor’s insurance carrier. It also came to light that the debtor had actively opposed our client’s wrongful death action for 20 months before telling anyone of the bankruptcy filing. Moreover, the debtor assumed its insurance coverage agreements as part of the confirmation process. In other words, there were substantial equitable facts heavily weighing in favor of our client’s late claim. Our strategy was to obtain a bankruptcy court order allowing the state action to proceed to judgment with collection to be limited to available insurance proceeds. Such a result would preserve the claim while not prejudicing the debtor.
After consulting with our client, a motion was filed to reopen the debtor’s case. The motion sought retroactive approval for the state court complaint and authority to file a late proof of claim for the damages sought in the wrongful death action. The motion also requested modification of the discharge injunction to permit the action to proceed to judgment. Movant relied on 11 U.S.C. §§350(b), 362(d) and Bankruptcy Rules 3003(c)(2) and (c)(3) and 9006. Also cited was the debtor’s implied waiver of any right to oppose the relief due to the prior litigation history.
Many interested parties, including the debtor’s counsel, committee counsel, the plan litigation trustee, as well as the Office of the United States Trustee, weighed in. Ultimately, the parties entered into a consent stipulation to permit the administrator to proceed with the wrongful death action, limited to judgment enforcement against available insurance proceeds. The consent stipulation was approved by bankruptcy court order.
In the end, sometimes outside-the-box thinking can be used to turn what appears to be a hopeless objective into a winning outcome. Contact Richard Weltman at rew@weltmosk.com to review your bankruptcy challenges.
About Weltman & Moskowitz, LLP, A New York and New Jersey Business, Bankruptcy, and Creditors’ Rights Law Firm:
Founded in 1987, Weltman & Moskowitz, LLP is a business law firm focusing on creditors’ rights, bankruptcy, foreclosure, business litigation, and commercial matters. Richard E. Weltman, a member of the firm, concentrates on business and bankruptcy litigation, commercial dispute resolution, corporate counseling, M&A, and transactional matters. Richard can be reached at (212) 684-7800, (201)794-7500 or rew@weltmosk.com. Michele K. Jaspan, an associate of the firm, contributed research and reporting.
