Robert Gentry v. Alfred Siegel ( 2012 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ROBERT GENTRY; JOSEPH SKAF; 
JONATHAN CARD; JACK HERNANDEZ,
Plaintiffs-Appellants,
v.
ALFRED H. SIEGEL, solely in his
capacity as trustee of the Circuit

City Stores, Inc. Liquidating Trust,
No. 10-2418
Defendant-Appellee.
NATIONAL ASSOCIATION OF
CONSUMER ADVOCATES; NATIONAL
ASSOCIATION OF CONSUMER
BANKRUPTCY ATTORNEYS,
Amici Curiae.

Appeal from the United States District Court
for the Eastern District of Virginia, at Richmond.
Henry E. Hudson, District Judge.
(3:10-cv-00567-HEH)
Argued: December 6, 2011
Decided: February 2, 2012
Before NIEMEYER, SHEDD, and DAVIS, Circuit Judges.
2 GENTRY v. SIEGEL
Affirmed by published opinion. Judge Niemeyer wrote the
opinion, in which Judge Shedd and Judge Davis joined.
COUNSEL
ARGUED: Michael C. Righetti, RIGHETTI GLUGOSKI
PC, San Francisco, California, for Appellants. Robert J. Fein-
stein, PACHULSKI STANG ZIEHL & JONES LLP, New
York, New York, for Appellee. ON BRIEF: Matthew Rig-
hetti, RIGHETTI GLUGOSKI PC, San Francisco, California;
Jason Krumbein, KRUMBEIN CONSUMER LEGAL SER-
VICES, INC., Richmond, Virginia, for Appellants. Gregg M.
Galardi, Ian S. Fredericks, SKADDEN, ARPS, SLATE,
MEAGHER & FLOM, LLP, Wilmington, Delaware; Lynn
Tavenner, Paula S. Beran, TAVENNER & BERAN, PLC,
Richmond, Virginia, for Appellee. Irv Ackelsberg, LANGER
GROGAN & DIVER, PC, Philadelphia, Pennsylvania, for
Amici Curiae.
OPINION
NIEMEYER, Circuit Judge:
Robert Gentry, Joseph Skaf, Jonathan Card, and Jack Her-
nandez (collectively, "Named Claimants") filed "class proofs
of claim" in these consolidated bankruptcy cases (the "bank-
ruptcy case") in which Circuit City Stores, Inc. and related
entities are the debtors (collectively "Circuit City"). Each
proof of claim asserted that it was filed for the Named Claim-
ant as a former employee of Circuit City and on behalf of a
class of other former employees similarly situated (collec-
tively, "unnamed claimants"). These Named Claimants
alleged that they, together with the unnamed claimants, were
owed almost $150 million in unpaid overtime wages.
GENTRY v. SIEGEL 3
After the Trustee objected to the class proofs of claim, the
Named Claimants filed a motion under Federal Rule of Bank-
ruptcy Procedure 9014 to make Bankruptcy Rule 7023 (incor-
porating Federal Rule of Civil Procedure 23 (Class Actions))
applicable to the contested claims.
The bankruptcy court ruled (1) that the Named Claimants
were not authorized to file class proofs of claim; (2) that the
Rule 9014 motion was untimely filed, having been filed more
than a year after the bankruptcy court had closed the time
period for filing proofs of claim; (3) that, in any event, the
bankruptcy process would be superior to the class action pro-
cess for handling the claims of the unnamed claimants; and
(4) that, in response to the Named Claimants’ challenge to the
bankruptcy notice given, the unnamed claimants had received
constitutionally adequate notice of the bankruptcy proceed-
ings and of the time period within which to file proofs of
claim.
The district court affirmed the bankruptcy court’s rulings
that the bankruptcy process was superior to the class action
process for resolving the former employees’ claims and that
the similarly situated unnamed claimants had received suffi-
cient notice of the bankruptcy process.
On the Named Claimants’ appeal, which raises all of the
issues decided by the bankruptcy court and presented to the
district court, we affirm. We do so, however, with a different
procedural approach for allowing claimants to file class
proofs of claim and to present Rule 9014 motions. With
respect to the bankruptcy court’s ruling that in the circum-
stances of this case, the bankruptcy process would provide a
process superior to the class action process for resolving the
claims of former employees, we conclude that the court’s rul-
ing fell well within its discretion. Finally, with respect to
these Named Claimants’ challenge to notice, we conclude that
the notice to them was not constitutionally deficient—a con-
clusion with which they agree—and that, with respect to the
4 GENTRY v. SIEGEL
unnamed claimants, the Named Claimants lack standing to
challenge the notice.
I
Each of the Named Claimants commenced a class action
against Circuit City Stores, Inc., in California state court.
Robert Gentry filed his class action in 2002, defining a class
of all salaried customer service managers at Circuit City
stores in California for the period between 1998 and March
2001. He alleged that Circuit City had failed to pay him and
the putative class members overtime wages, in violation of
California state law. In defending that action, Circuit City
sought to enforce an arbitration agreement between Circuit
City and the employees that included a provision banning
class arbitration, and this issue had been litigated up to the
California Supreme Court and was pending after remand at
the time Circuit City filed its bankruptcy petition. See Gentry
v. Superior Court, 165 P.3d 556 (Cal. 2007). At that time, no
class had been certified in the Gentry case, and the case was
stayed by operation of law with the filing of the bankruptcy
petition.
Each of the other three Named Claimants commenced a
similar class action against Circuit City Stores, Inc. Jack Her-
nandez filed his complaint in April 2008 on behalf of salaried
store managers in California who worked between 2004 and
the 2008 date when he filed his complaint. Jonathan Card
filed his class action in November 2008, a few days before
Circuit City filed its bankruptcy petition. Joseph Skaf filed his
class action on December 19, 2008, over a month after Circuit
City’s bankruptcy petition had been filed. Card and Skaf
sought to represent various groups of Circuit City employees
in California, who were employed during the four years
before November and December 2008, respectively.
Circuit City filed its bankruptcy petition initially under
Chapter 11 for reorganization. A month after Circuit City
GENTRY v. SIEGEL 5
filed its petition, the bankruptcy court entered an order, dated
December 10, 2008, fixing 5:00 p.m. Pacific time on January
30, 2009, as the deadline ("the bar date") for filing proofs of
claim arising before the petition date and warning that proofs
of claim filed after that date would be deemed extinguished.
The bankruptcy court also approved the contents of notice to
interested persons, which described the bankruptcy proce-
dures and announced the bar date. Specially retained agents
of Circuit City served the notice on December 19, 2008, to
over 370,000 interested persons, including all Circuit City
employees for the three years prior to the petition date, the
Named Claimants, counsel for the Named Claimants, and any
other parties with pending litigation or employee grievance
claims against Circuit City and its related debtors. Circuit
City’s agents also posted the notice in the Wall Street Journal
and in the newspaper of general circulation in Richmond, Vir-
ginia, where Circuit City’s home office was located.
Gentry, Card, and Hernandez filed proofs of claim on Janu-
ary 13, 2009, alleging that the amounts claimed by them were
priority claims, and they filed their claims not only for them-
selves, but purportedly on behalf of "all those similarly situ-
ated," as alleged in the California state class litigation. They
attached copies of their state complaints and claimed in their
proofs of claim damages of roughly $7 million, $22 million,
and $24 million, respectively. Skaf filed a similar class proof
of claim on January 30, 2008, claiming damages of roughly
$95 million.
In June 2009, Circuit City filed an objection to the Gentry
and Hernandez class proofs of claim on the ground that the
Named Claimants asserted priority claims. In August 2009,
Circuit City objected to the Card and Skaf class proofs of
claim on the ground that it was not liable for any amount
sought in any pending litigation. In February 2010, Circuit
City supplemented its previous objections by adding an objec-
tion to each of the class proofs of claim on the basis that the
Named Claimants had failed to seek authorization from the
6 GENTRY v. SIEGEL
bankruptcy court under Rules 9014 and 7023 to certify a class
and act as an agent for the unnamed claimants in filing class
proofs of claim.
The bankruptcy court conducted a hearing on March 25,
2010, during which it addressed numerous issues, including
the Named Claimants’ request for class discovery and class
disposition of the claims. The bankruptcy court determined
that discovery was not necessary because the Named Claim-
ants had not succeeded with their motion under Rule 9014 to
make Rule 7023 (incorporating Civil Rule 23) applicable to
the contested matters. The court noted that the Rule 9014
motion had to be decided on a "threshold basis" and that the
decision whether to grant the motion and apply Rule 7023
rested solely on the interaction between class action proce-
dures and the administration of the bankruptcy estate.
Within a week of the hearing, the Named Claimants filed
a motion under Rule 9014 to make Rule 7023 applicable to
their proofs of claim, as suggested by the bankruptcy court at
the hearing. Circuit City opposed the Rule 9014 motion, argu-
ing that it was untimely, coming a year after the bar date, and
that, in any event, the bankruptcy claims process was superior
to the class action process for addressing the claim.
Following oral argument, the bankruptcy court entered an
opinion and order, dated April 15, 2010, denying the Named
Claimants’ Rule 9014 motion. The court ruled that the Named
Claimants were not authorized to file class proofs of claim
and that their Rule 9014 motion to apply Rule 7023 was
untimely. The court further found that even if the Named
Claimants were authorized to file class proofs of claim and
had timely filed their Rule 9014 motion, it would nonetheless
deny the motion because the class action process would be
inferior to the claims resolution process established by the
bankruptcy court and would unduly complicate the adminis-
tration of the bankruptcy estate. Finally, the court held that
Circuit City had provided putative class members with consti-
GENTRY v. SIEGEL 7
tutionally sufficient notice regarding the bankruptcy claims
process and the bar date.
The Named Claimants appealed the rulings to the district
court, and the district court held that the bankruptcy court had
not abused its discretion in determining that the bankruptcy
claims process was superior to the class action process in
denying the Rule 9014 motion. The court also ruled that the
unnamed claimants received constitutionally sufficient notice
because they were either given actual notice or were "un-
known creditors," for whom notice by publication was suffi-
cient. Based on these two rulings, the district court affirmed
the bankruptcy court’s denial of the Rule 9014 motion and its
refusal to allow the Named Claimants to pursue class actions.
The Named Claimants appealed to this court, raising all of
the issues that they presented to the district court.
II
The Named Claimants’ efforts to pursue class actions in
this bankruptcy case reveal gaps in the Bankruptcy Rules and
raise some difficult procedural issues about the manner in
which the Bankruptcy Rules provide for class actions in bank-
ruptcy cases, as authorized by Rules 7023 and 9014.
To address these issues, we begin with the bankruptcy
case’s procedural structure. A bankruptcy case is commenced
by the filing of a petition. Fed. R. Bankr. P. 1002(a). Within
the case, a creditor may file a proof of claim, which, if
objected to, becomes a disputed matter, and a disputed matter
in a bankruptcy case is referred to as a contested matter. See
Fed. R. Bankr. P. 9014 advisory committee’s note; In re
American Reserve, 840 F.2d 487, 488 (7th Cir. 1988) ("All
disputes in bankruptcy are either adversary proceedings or
contested matters"). An adversary proceeding in a bankruptcy
case must fall within one of the categories defined in Rule
7001 and must be commenced by the filing of a complaint.
8 GENTRY v. SIEGEL
Fed. R. Bankr. P. 7001, 7003. In addition, any objection to a
proof of claim that asserts a claim for relief of the kind listed
in Rule 7001 may serve as a complaint commencing an adver-
sary proceeding. See Fed. R. Bankr. P. 3007.
Rule 7023, which falls within Part VII of the Bankruptcy
Rules governing adversary proceedings, provides simply,
"Rule 23 F. R. Civ. P. applies in adversary proceedings." Rec-
ognizing that not all disputed matters in a bankruptcy case rise
to the level of an adversary proceeding, Rule 9014, which
applies only to "contested matters," designates certain
adversary-proceeding rules that automatically apply to "con-
tested matters." While the list does not include Rule 7023,
Rule 9014 also authorizes the bankruptcy court, on motion, to
make "one or more of the other rules in Part VII" applicable
to contested matters, which includes Rule 7023.1
The Bankruptcy Rules addressing proofs of claim are silent
about whether creditors, who wish to represent a class of sim-
ilarly situated unnamed claimants, can file class proofs of
claim. Rule 3001, which addresses proofs of claims, autho-
rizes "the creditor or the creditor’s authorized agent" to file
1
It is not completely clear that Civil Rule 23 could ever be applied to
a contested matter. A contested matter in a bankruptcy case is any dis-
puted matter, typically resolved simply by a motion and a bankruptcy
court order. See Fed. R. Bankr. P. 9013. Because that process appears to
be intended as a simple process, even though involving sometimes a hear-
ing and testimony, it is difficult to conceive how the complex Civil Rule
23 process could be applied; the contested matter process could become
a procedural quagmire, morphing it into an adversary proceeding. Of
course, for adversary proceedings, a Rule 9014 motion would appear not
to be necessary inasmuch as Rule 7023 already authorizes the application
of Civil Rule 23 to an adversary proceeding.
In this case, the Named Claimants did not file a complaint to commence
an adversary proceeding. See Fed. R. Bankr. P. 7003; Reid v. White Motor
Corp., 886 F.2d 1462, 1470 & n.8 (6th Cir. 1989). They only filed proofs
of claim. For purposes of our holding, we assume, without deciding, that
the Civil Rule 23 process could be applied to the resolution of a contested
matter.
GENTRY v. SIEGEL 9
a proof of claim, saying nothing about whether a creditor can
file for himself and a class of others similarly situated. Fed.
R. Bankr. P. 3001.
The four Named Claimants in these cases have sought to
represent four classes of several hundred similarly situated
former Circuit City employees to pursue claims for overtime
wages against the bankruptcy estate. Accordingly, each
Named Claimant filed a "class proof of claim" for himself and
for other former employees similarly situated, attaching to
their proofs of claim previously filed state court class-action
complaints to support their effort. When the claims were
objected to, they became contested matters, and the Named
Claimants filed a Rule 9014 motion to make Rule 7023 appli-
cable to the contested matters. The Named Claimants, of
course, had to recognize that if the Rule 9014 motion were to
be denied, then the unnamed claimants would be required to
file individual proofs of claim if they wished to pursue their
claims against the bankruptcy estate at all.
The Trustee has challenged the Named Claimants’
approach, insisting on a strict application of the Bankruptcy
Rules. First, he contends that proofs of claim may only be
filed by creditors or authorized agents of creditors and there-
fore may not be filed on behalf of other unnamed creditors in
the form of a class proof of claim. In the absence of a class
having been certified before the bankruptcy petition was filed,
the four Named Claimants could not, the Trustee argues,
assert that they were "authorized agents" for the unnamed
claimants with authority under Rule 3001 to file class proofs
of claim for the unnamed claimants. Second, the Trustee
asserts that a Rule 9014 motion must be filed before a class
proof of claim is filed in order to authorize the filing of class
claims by a representative agent.
The logical conclusion of the Trustee’s strict reading of the
Bankruptcy Rules, however, is that Named Claimants might
never be able to pursue a class action. Under the Trustee’s
10 GENTRY v. SIEGEL
view, because class proofs of claim may not be filed except
following a Rule 9014 order approving application of the
class action rules and because Rule 9014 is applicable only to
contested matters, it follows that a class proof of claim can
never be filed because it is not "a contested matter" when
filed. And if a class proof of claim cannot be filed, then
unnamed claimants who have not filed proofs of claim cannot
be parties to the bankruptcy case. The Trustee’s position
would presumably require that all creditors file individual
proofs of claim and then, if those claims become so numerous
and so similar as to justify class action treatment, the creditors
could seek to commence a class action under Rule 7023. This
take on the Bankruptcy Rules would likely preclude virtually
all class actions in bankruptcy cases.
We conclude that the Trustee’s construction of the Bank-
ruptcy Rules is unduly cramped and unsuited for application
by a court in equity seeking, by application of the Bankruptcy
Rules, to accomplish the purposes of the Bankruptcy Act. The
Bankruptcy Rules are tools, which include Rule 7023 and
derivatively Civil Rule 23, by which the bankruptcy court as
a court of equity is to accomplish the Act’s purposes. See
Katchen v. Landy, 382 U.S. 323, 327 (1966) (noting that in
carrying out the core functions of administering debtor’s
estates, bankruptcy courts sit as "essentially courts of
equity"); Montgomery Ward & Co. v. Langer, 168 F.2d 182,
187 (8th Cir. 1948) (noting that "the class action was an
invention of equity"). In the absence of some prohibiting rule
or principle, the Bankruptcy Rules should be construed to
facilitate creditors’ pursuit of legitimate claims and to allow
Civil Rule 23 to be applied if doing so would result in a more
practical and efficient process for the adjudication of claims.
The Named Claimants in this case have sought to employ
Civil Rule 23 to adjudicate the claims of numerous former
and similarly situated Circuit City employees. As they initi-
ated their efforts, the Named Claimants proposed to represent
a class in class proofs of claim, and the allegations they made
GENTRY v. SIEGEL 11
to justify the class claim could only have been conditional, as
any class process was subject to their demonstrating justifica-
tion and the court’s approval. Pending approval, therefore, the
Named Claimants were putative agents of the similarly situ-
ated unnamed claimants. Just like a Civil Rule 23 class action,
the proposed class representation in bankruptcy is putative,
subject to court approval, and thus anticipates a retrospective
application of the approval, if given. As the Seventh Circuit
has noted:
Not every effort to represent a class will succeed; the
representative is an agent only if the class is certi-
fied. Putative agents keep the case alive pending the
decision on certification. See [U.S. Parole Comm’n
v.] Geraghty[, 445 U.S. 388 (1980)]; cf. American
Pipe [& Constr. Co. v. Utah, 414 U.S. 538 (1974)]
(the filing of a class suit suspends the statute of limi-
tations for all members of the class, even though the
district court does not certify the class originally
requested).
In re American Reserve, 840 F.2d 493 (7th Cir. 1988).
Because the Bankruptcy Rules accept the notion that class
action rules may, in appropriate circumstances, be employed
in a bankruptcy case, we conclude that they therefore neces-
sarily embrace the notion that the proposal to represent a class
is tentative pending approval. And with that notion comes the
equally necessary propositions that if the proposal is
approved, the approval relates back to when it was made, and
if it is rejected, the putative class members must be given time
after the court’s rejection to file individual proofs of claim.
Stated otherwise, by recognizing class actions, the Bank-
ruptcy Rules also recognize that putative class representatives
can keep the class action process alive until the court decides
the issue. Thus, we conclude that Rule 3001 should be con-
strued to allow class proofs of claim, at least on a tentative
basis, until the court rejects the class-action process.
12 GENTRY v. SIEGEL
In so construing Rule 3001, we function with the same
flexibility that Rule 3001 does in construing 11 U.S.C. § 501.
Section 501 of the Bankruptcy Code, authorizing creditors to
file proofs of claim to obtain distributions from a bankruptcy
estate, provides simply that "[a] creditor or an indentured
trustee may file a proof of claim. An equity security holder
may file a proof of interest." 11 U.S.C. § 501(a). If that provi-
sion were to be construed strictly, it would make no accom-
modation for agents or putative agents to file proofs of claim
on behalf of creditors, other than those agents specifically
enumerated in § 501. Yet, Rule 3001 authorizes agents gener-
ally to file proofs of claim on behalf of creditors.
We agree with the Seventh Circuit’s conclusion that the
authorization for the filing of proofs of claim should not be
construed strictly. See In re American Reserve, 840 F.2d at
492-93 (noting that a strict ruling would effectively under-
mine the application of the class action rule). Thus, if proofs
of claim may be filed by agents of creditors, they may also
be filed by putative agents on a conditional basis. Reaching
such a conclusion serves the same procedural goal that is
served by allowing agents to file proofs of claims on behalf
of creditors. We thus conclude that creditors may file proofs
of claims for themselves and as putative agents for members
of a class who are similarly situated. But such class proofs of
claim serve their function only on a conditional basis. If the
court approves class representation, the approval will function
retroactively to legitimize the class proof of claim, but if the
court rejects such representation, the putative class members
will have to file individual proofs of claim. As the Seventh
Circuit reasoned:
If the bankruptcy judge denies the request to certify
a class, then each creditor must file an individual
proof of claim; the putative agent never obtains "au-
thorized agent" status. If the court certifies the class,
however, the self-appointed agent has become "au-
thorized" and the original filing is effective for the
GENTRY v. SIEGEL 13
whole class (the principals). It follows that there may
be class proofs of claim in bankruptcy.
Id. at 493 (footnote omitted).
In construing the Bankruptcy Rules to permit the filing of
a class proofs of claim, we join the vast majority of other
courts that have considered the issue. See Birting Fisheries,
Inc. v. Lane (In re Birting Fisheries, Inc.), 92 F.3d 939 (9th
Cir. 1996) (per curiam); Reid, 886 F.2d at 1470; In re Charter
Co., 876 F.2d 866 (11th Cir. 1989); In re Computer Learning
Ctrs., Inc., 344 B.R. 79 (Bankr. E.D. Va. 2006); In re Ephe-
dra Prods. Liab. Litig., 329 B.R. 1 (S.D.N.Y. 2005) (collect-
ing cases); In re Amdura Corp., 170 B.R. 445 (D. Colo.
1994); but see In re FIRSTPLUS Financial, Inc., 248 B.R. 60,
68-73 (Bankr. N.D. Tex. 2000).
Recognizing class proofs of claim has the salutary effect of
putting trustees and other parties on notice of the representa-
tive claimants’ intent to pursue a class action in the bank-
ruptcy case, allowing them to agree or disagree through
objections. And the representative claimants can then, upon
an indication of an objection, file a Rule 9014 motion to
authorize the application of Rule 7023. If the motion is
granted, the procedure set forth in Civil Rule 23 would
become applicable. Of course, if the bankruptcy court denies
the motion, it should then establish a reasonable time within
which the individual putative class members are allowed to
file individual proofs of claim. Cf. American Pipe & Constr.
Co. v. Utah, 414 U.S. 538, 553 (1974) (noting that "the com-
mencement of the original class suit tolls running of the stat-
ute for all purported members of the class who make timely
motions to intervene after the court has found the suit inap-
propriate for class action status"). But in this case, no
unnamed claimant attempted, or indicated an intent, to file an
individual proof of claim after the bankruptcy court denied
the Named Claimants’ class proofs of claim.
14 GENTRY v. SIEGEL
In sum, insofar as the bankruptcy court ruled that claimants
could not file class proofs of claim without first obtaining an
order under Rule 9014, we reverse the ruling.
III
The Trustee contends also that because the Named Claim-
ants’ motion under Rule 9014 to apply Rule 7023 was filed
after the bar date for filing proofs of claim, the motion was
untimely. Additionally, he contends that even if a post-bar-
date motion could be considered, the Named Claimants’
motion was untimely simply because of the length of time
involved. It was filed over a year after the bar date and over
six months after his initial objections to the Named Claimants’
proofs of claim were filed.
The Bankruptcy Code and the Bankruptcy Rules, however,
offer no support for these arguments. The Bankruptcy Code
provides that a creditor "may raise and may appear and be
heard on any issue in any case," without imposing any dead-
lines, 11 U.S.C. § 1109(b), and Rule 9014 provides that a
court may apply Rule 7023 "at any stage in a particular mat-
ter," Fed. R. Bankr. P. 9014. In addition, Rule 9014 applies
only to "contested matters" and, as already noted, a "contested
matter" does not arise from a proof of claim until an objection
to the claim has been interposed. See In re Charter Co., 876
F.2d at 874-75. In this case, the objection to the proofs of
claim as class proofs of claim was not filed until February
2010, and shortly thereafter, the Named Claimants filed their
Rule 9014 motion.
The Trustee argues that forcing putative class representa-
tives to wait until objections to their class proofs of claim are
made will allow debtors in future cases to withhold their
objections until the "eve of confirmation and then move to
expunge the class claim on the grounds that applying Rule 23
would unduly delay distribution." In re Ephedra Prods. Liab.
Litig., 329 B.R. at 6. Because of the ongoing administration
GENTRY v. SIEGEL 15
of the bankruptcy estate by both the bankruptcy court and the
trustee, we do not share this concern. The considerations
attendant to a decision on Rule 9014 relate to the practicality
and efficiency afforded by class action process as distinct
from standard bankruptcy process, and we do not think a
delay in distribution to other claimants would be a serious
consideration if legitimate claims remained open to be
resolved. Moreover, as a court of equity, the bankruptcy court
has the authority to disallow objections or to deny Rule 9014
motions if they are employed in attempts to engage in some
kind of "gotcha" behavior designed to gain an unfair advan-
tage.
At bottom, we also reverse the bankruptcy court’s ruling
that the Named Claimants’ Rule 9014 motion was untimely.
IV
The Named Claimants also contend that the bankruptcy
court abused its discretion in ruling against them on the merits
of their Rule 9014 motion, arguing that the court reached an
erroneous conclusion that the bankruptcy process for handling
creditor claims on an individual basis is superior to the class
action process and that, in any event, the court should have
allowed the Named Claimants’ Civil Rule 23 discovery before
reaching its conclusion.
Rule 9014 authorizes the bankruptcy court to "direct" that
one or more of the adversary rules, including Rule 7023,
"shall apply" to a contested matter, and the court is given
broad discretion in making this determination. See Reid, 886
F.2d at 1470; In re American Reserve, 840 F.2d at 492.
In resolving the Named Claimants’ Rule 9014 motion in
this case, the bankruptcy court "weighed the benefits and
costs of class litigation against the efficiencies created by the
bankruptcy claims resolution process" and concluded that in
the circumstances of this case, the bankruptcy claims resolu-
16 GENTRY v. SIEGEL
tion process was superior. The court looked at the issue both
on a systemic level and in light of the facts specific to this
case.
On the systemic level, the court noted that the bankruptcy
process had the advantages that all claims could be consoli-
dated in one forum; that claimants could file proofs of claim
without counsel; and that filing individual claims would
impose "virtually no costs" on claimants. The court noted that
bankruptcy provides "(1) established mechanisms for notice,
(2) established mechanisms for managing large numbers of
claimants, (3) proceedings centralized in a single court with
nationwide service of process, and (4) protection against a
race to judgment since all of the debtor’s assets are under con-
trol of the bankruptcy court." In contrast to those systemic
advantages, the court pointed out that "going forward with the
class action lawsuits would involve expensive, time-
consuming, protracted litigation that could delay and lessen
the distribution of the Debtors’ assets to the creditors." The
court observed that the "normal policy concerns" that would
favor a class action process—referring to inconsistent adjudi-
cations and the deterrence of improper defendant behavior—
were not a concern in a bankruptcy proceeding involving a
single court. Deterrence in a liquidation proceeding was not
a concern for the bankruptcy court because "any labor law
violations could not be remedied for future employees and no
long-term benefits could be provided." At bottom, it found
that the systemic considerations favored the bankruptcy
claims process.
Addressing the specific facts of this case, the court reached
the same conclusion. It noted that it had already established
a structure for processing large numbers of claims and that
approximately 15,000 claims had been filed under the pro-
cess. It pointed out that, as of March 18, 2010, the court had
entered orders with respect to 7,800 of the claims. Observing
that the process was working well, the court concluded that "it
is highly doubtful that an additional several hundred claims
GENTRY v. SIEGEL 17
from potential class members would negatively impact the
claims resolution process in these cases." The court also noted
that because the claims resolution process was "well under-
way," permitting class action cases to proceed would "unduly
complicate the administration" of the bankruptcy case. The
court concluded that allowing the putative class members to
file individual proofs of claim would be "more efficient."
The Named Claimants do not seriously dispute these con-
clusions reached by the bankruptcy court. Rather, they argue
almost exclusively that the bankruptcy court abused its discre-
tion by reaching its conclusions without first granting their
request for discovery and by not allowing "any evidence
whatsoever to address the Rule 23 factors." In their arguments
to the bankruptcy court, they contended that "discovery [was]
essential to the class certification presentation." And on
appeal, they devoted most of their brief to arguing that denial
of class-action related discovery was the most significant
error below. This argument, however, represents a misunder-
standing of the issue that was resolved in deciding the Rule
9014 motion.
For the most part, Civil Rule 23 factors do not become an
issue until the bankruptcy court determines that Rule 7023
applies by granting a Rule 9014 motion. The issue on such a
motion centers more directly on whether the benefits of
applying Rule 7023 (and Civil Rule 23) are superior to the
benefits of the standard bankruptcy claims procedures. While
some Civil Rule 23 factors could be relevant to resolving a
Rule 9014 motion, extensive discovery related to class certifi-
cation is not necessary. For example, the numerosity of a par-
ticular class, which is one of the factors to be considered
under Civil Rule 23 for certification, could impact a bank-
ruptcy court’s decision on a Rule 9014 motion. But in this
case, the approximate size of the purported classes was not
disputed. In fact, when pressed at oral argument, counsel for
the Named Claimants’ could not describe what discovery
18 GENTRY v. SIEGEL
would be necessary to deciding the Rule 9014 motion itself,
continuing to focus instead on the Civil Rule 23 factors.
In deciding the Rule 9014 motion, the bankruptcy court
assumed that a class action could be certified, thus rendering
discovery into certification irrelevant, and concluded nonethe-
less that the process of a certified class action would be more
cumbersome and expensive than the bankruptcy process.
Accordingly, the court found that in this particular case, class
certification discovery was not necessary. It reached its deci-
sion on the Rule 9014 motion on the threshold question of
whether the specific claims resolution process established in
this bankruptcy case was superior to the resolution process in
a class action, assuming that the proposed classes were to be
certified. We conclude that this approach was not an abuse of
discretion.
Distinct from the bankruptcy court’s denial of class action
discovery, we cannot conclude that the court’s ruling on the
merits of the Rule 9014 motion was an abuse of discretion.
The court noted that approximately 15,000 claims had been
filed against Circuit City as part of the claims process and that
the structural mechanisms that the court had put in place to
process claims were "well underway" and had been operating
smoothly to date. Although the bankruptcy court did not
ascertain the exact number of claimants who would be
included in the putative classes, estimating them to be a "few
hundred" (a number that counsel for the Named Claimants
confirmed at oral argument), the court could reasonably con-
clude that even several thousand claims would better be han-
dled by the well-functioning claims resolution process that the
court had already put into place. Indeed, the court could dis-
cern no substantial benefit in allowing the claimants to pro-
ceed through a class action process in this case, and we find
no reason to find this to be an abuse of discretion. See In re
Computer Learning Ctrs., 344 B.R. at 91; In re Ephedra
Prods. Liab. Litig., 329 B.R. at 9.
GENTRY v. SIEGEL 19
This is not to say, however, that a class action in a bank-
ruptcy case can never be superior. Each bankruptcy case must
be assessed on a case-by-case basis to determine whether
allowing a class action to proceed would be superior to using
the bankruptcy claims process. We simply say that the bank-
ruptcy court properly exercised its discretion in this case.
V
Finally, the Named Claimants challenge the notice given to
the putative class of unnamed claimants, arguing particularly
that the court should have provided "Rule 23 opt-out notice."
As they state, "the notice procedure used to inform creditors’
putative class members did not comport with due process or
Rule 23."
Again, however, the argument to apply Civil Rule 23 con-
flates the bankruptcy process with the independent commands
of Civil Rule 23. Because the bankruptcy court denied the
Rule 9014 motion to apply Rule 7023, there was no require-
ment that unnamed class members be notified in accordance
with the procedures under Civil Rule 23. The bankruptcy
court would have to grant the Rule 9014 motion before the
requirements of Civil Rule 23 could apply. Thus, the only
notice required was that given by Circuit City for giving
notice of bankruptcy procedures and the bar date.2
As to the Named Claimants’ contention that the notice pro-
cedures violated the due process rights of the unnamed class
members, "extinguish[ing] the rights of thousands of formerly
employed workers seeking hard-earned wages for work per-
formed," we conclude that the Named Claimants do not have
standing to assert the due process rights of others who are not
2
Circuit City’s agents sent individualized notices to 370,000 persons in
interest, including all Circuit City employees for three years prior to the
bankruptcy petition, and the notices contained a description of the bank-
ruptcy procedures and the bar date for filing proofs of claim. In addition,
for unknown claimants, the agents posted the notice in the Wall Street
Journal and in a newspaper of general circulation in Richmond, Virginia,
where Circuit City was located.
20 GENTRY v. SIEGEL
parties. The Named Claimants received actual, individualized
notices, as did their attorneys, and they have made no com-
plaint regarding the notice provided to them. We decline their
invitation to evaluate the adequacy of notice provided to the
nonparty unnamed class members because the Named Claim-
ants lack standing to raise the issue.
For the reasons given herein, we affirm the judgment of the
district court.
AFFIRMED