Boone County Utiliti v. Branham Corporation ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-3673
IN RE:
BOONE COUNTY UTILITIES, LLC,
Debtor-Appellee.
APPEAL OF:
BRANHAM CORPORATION.
____________
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 05 C 1173—Larry J. McKinney, Chief Judge.
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ARGUED SEPTEMBER 14, 2007—DECIDED OCTOBER 22, 2007
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Before BAUER, EVANS, and WILLIAMS, Circuit Judges.
EVANS, Circuit Judge. The Branham Corporation
appeals from an order of the district court which, in turn,
affirmed an order of the bankruptcy court. The issues
involve the decisions of the bankruptcy court not to
allow Branham’s claims against the bankruptcy estate,
the most significant of which was found to be untimely.
We review a district court’s decision to affirm the
bankruptcy court de novo, which allows us to “assess the
bankruptcy court’s judgment anew, employing the same
standard of review the district court itself used.” In re
Kmart Corp., 381 F.3d 709, 712 (7th Cir. 2004). A bank-
ruptcy court’s refusal to consider a claim will be over-
2 No. 06-3673
turned “only in extreme cases, when the bankruptcy court
has abused its discretion.” Id.The record in this case, including transcripts of several
hearings, reveals a notable lack of clarity as to the basis
for Branham’s claims. The bankruptcy judge did his
best to focus Branham’s efforts, but we have the feeling
that he left most hearings, as would anyone, scratching
his head about exactly what Branham was arguing.
Judges are not Sudoku masters (of course, there are some
exceptions!) who enjoy filling in a grid with few hints about
where things go.
Branham was hired by a development firm, Newland
Resources, LLC, to aid in acquiring a drinking water
supply and a wastewater treatment service for a project
of Newland’s. Newland created an entity, Boone County
Utilities (the debtor), to operate the project. A contract
between Newland and Branham provided that Branham
was to be paid a fee for securing the services, reimburse-
ment for out-of-pocket expenses, and a success fee, calcu-
lated basically as 8 percent of the fair market value of
the total ownership interest in Boone in excess of
$3,500,000.
After Boone filed its petition, the bankruptcy court
established claims bar dates of May 26, 2004, September
9, 2004, and December 23, 2004. Branham filed a proof
of claim, number 6, on May 11, 2004. The claim explicitly
stated that it was based on a contract dated December 8,
1995 (the Branham/Newland contract); the claim was for
$136,000. A second proof of claim, number 9, was filed
September 9, 2004, and was based again on the
Branham/Newland contract. This time no amount was
stated. Then on September 10, 2004, Branham filed
proof of claim 12, again based on the same contract, this
time for $648,200.35. The contract was attached to each of
these three claims. Each was timely filed on an official
bankruptcy court form.
No. 06-3673 3
At a hearing on September 14, 2004, Boone’s plan was
confirmed over Branham’s objection, and no appeal was
taken. But just prior to the hearing, Branham had filed
a motion for relief from the automatic stay under 11
U.S.C. § 362 so that it could file an action against Boone
in state court. After a hearing, the motion was denied. The
complaint, even though it contained claims against
Newland and other parties not subject to the stay, was
never filed in the state court.
Meanwhile, litigation proceeded in the bankruptcy
court on Branham’s claims. Motions to disallow claims
were filed in the fall; a hearing was scheduled for Decem-
ber 16, 2004. The hearing date was continued twice at
Branham’s request. Finally, a hearing proceeded on May
18, 2005. The day before the hearing, Branham filed
another amended proof of claim, this time for a whopping
$7,007,954. Because the claim was patently untimely,
Branham argued that it related back to prior claims 6, 9,
12, and an informal proof of claim. The alleged informal
proof of claim was, in fact, the motion for relief from the
stay and the proposed state court complaint. The bank-
ruptcy judge found that claim 16 did not relate back
because it set out new theories of recovery. It was disal-
lowed as untimely.
In this appeal, Branham argues that claim 16 does not
set out a new theory of recovery because proof of claims 6,
9, and 12 provide notice of an equitable claim for unjust
enrichment, that a proposed state court complaint at-
tached to a motion for relief from the stay satisfied the
requirements for an informal proof of claim, that the
state court complaint states a claim for unjust enrichment,
and that under Federal Rule of Civil Procedure 15(c), proof
of claim 16 relates back to the date of the informal proof
of claim and to proof of claims 6, 9, and 12. In turn, Boone
says the case is moot because the assets of the estate have
been distributed.
4 No. 06-3673
Claims 6, 9, and 12 were explicitly based on the contract
between Branham and Newland. Boone is not a party to
the contract. Yet Boone is the debtor in whose case the
claim is filed. This, in itself, was the subject of much
confusion in the bankruptcy court. Realizing that Boone’s
not being a party to the contract was causing problems
for its contract claim against Boone, counsel for Branham
referred to a “constructive contract,” a phrase which was
never adequately explained. At the confirmation hearing,
counsel for Branham stated:
The Branham Corporation is arguing that there is
a constructive contract, a quasi-contract, and that the
claim for the success fee . . . is properly determinable
by this Court.
The success fee arises directly out of the contract between
Branham and Newland. A reasonable inference about
what counsel was saying at this point is that somehow
Boone is responsible for the success fee set out in the
contract between Branham and Newland under a con-
structive contract theory. In fact, the bankruptcy judge
tried to clarify a murky situation: he asked, “Your claim
is based upon what? I guess I’m trying to track on this.”
Later, he asked if the claim was for a finder’s fee.
Branham’s counsel said, “It’s not a finder’s fee, it’s a
success fee.” Later, she stated that the claim was for
approximately $648,000. That amount was arrived at
based on a computation under the formula set out in the
Newland/Branham contract. In other words, the only
reasonable inference at this point from Branham’s presen-
tation of the claim was that it was dependent on the
contract. There is no mention at this hearing of any sort
of unjust enrichment claim or what such a claim would
be based on. The reference to a quasi or constructive
contract was an attempt to receive payment under the
contract, as, in fact, claims 6, 9, and 12 explicitly stated.
No. 06-3673 5
Yet, on appeal, Branham is saying that by constructive
contract in this situation it meant unjust enrichment
because under Indiana law the terms are synonymous.
That the words were used synonymously by Branham is
not at all clear. In fact, it is clear they were not. If unjust
enrichment is what Branham meant all along, it should
have said so. Simply uttering the words might have
gone a long way toward clarifying its claims in the bank-
ruptcy court. And, in fact, we conclude that Branham
was not arguing unjust enrichment. Until the day before
the May hearing, Branham consistently contended in the
bankruptcy court that it was owed a success fee.
And it wasn’t until April 18, 2005, at a deposition, that
there was any clear reference to unjust enrichment and
an acknowledgment that there was no valid claim under
an implied contract. George Pendygraft, Branham’s
owner and a licensed practicing attorney in Indiana, said
that on September 14 he came to the
understanding that the correct legal cause of action
was unjust enrichment, and not some—some implied
contract based on the Branham/Newland contract,
because, as I looked at the law, which is how, frankly,
I came to arrive with my counsel to the unjust enrich-
ment theory, it became clear to me that the
Branham/Newland contract was what the courts
were describing as an express contract which had to
either be in writing or oral, and I didn’t have any
express contract with BCU.
We agree with the bankruptcy and district courts and
Mr Pendygraft that claims 6, 9, and 12 were contract
claims—based on a contract to which the debtor was not
a party. They were properly disallowed.
So, by the time of the deadline for claims, Branham had
filed three proofs of claim based on a contract to which the
debtor was not a party. It had also filed a motion for
6 No. 06-3673
relief from the stay and a proposed complaint to be filed
in state court. As we said, the motion to lift the stay was
denied. But, as relevant here, Branham now argues that
the proposed complaint actually is an informal proof of
claim.
Generally speaking, courts have set out a number of
requirements for a document to qualify as an informal
proof of claim. For instance, some courts say that the
document must inform the court of the existence, nature,
and amount of the claim and make clear the debtor’s
intention to hold the debtor liable for the claim. In re
Charter Co., 876 F.2d 861 (11th Cir. 1989). Another
formulation of the requirements is that proof of claim
must be in writing, it must contain a demand on the
debtor’s estate, it must express an intent to hold the debtor
liable for the debt, and it must be filed with the bank-
ruptcy court. In re M.J. Waterman & Assocs., Inc., 227
F.3d 604 (6th Cir. 2000).
We see no need to set out requirements for informal
proofs of claim in this case. First of all, even assuming the
proposed state court complaint were considered an infor-
mal proof of claim, it does not move Branham’s case
forward. The proposed complaint does not add anything
to the other formal proofs of claim. It does not set out an
unjust enrichment claim against Boone. The claims against
Boone are once again for the success fee. Secondly, after
the motion for a stay was denied, Branham had sufficient
time to file a formal proof of claim and, as is clear from
other filings, it knew perfectly well how to do so. This is
not a situation in which equity demands that the document
should be considered an informal proof of claim because it
is the only way a creditor can recover on a legitimate debt.
In contrast, Branham has three times previously set out
virtually the same claim. Any one of the claims provides as
good a basis as any other to make the ultimately futile
argument that claim 16 should relate back.
No. 06-3673 7
Proof of claim 16 is clearly untimely. After the deadline
for claims, one day before the hearing (which had been
adjourned two times), amended claim 16 was filed. Not
only is it untimely, but, as we said, it is a different claim.
It does not mention a contract; it changes the date on
which the debt was incurred from the date of the con-
tract (September 8, 1995) to March 12, 2003; and it
increases the claim from $648,200.35 to over $7 million.
Yet, somehow Branham expects us to conclude that the
bankruptcy judge abused his discretion in determining
that this claim does not relate back to the prior claims
and is therefore untimely. That we cannot do. As the
district court (Chief Judge Larry J. McKinney) aptly noted:
The Bankruptcy Court has the responsibility to admin-
ister its cases. It is well within its discretion under
the rules to decide that an amended claim filed the
night before a hearing, which had been continued twice
by the claimant . . . is just too late.
We agree. The judgment of the district court is AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-22-07