541 B.R. 144
Bankr. S.D.N.Y.2015Background
- Debtors (Vivaro Corp. and affiliated entities) filed Chapter 11 on Sept. 5, 2012; sale of most assets approved and cases are being liquidated.
- Eight foreign claimants filed timely proofs of claim and were later identified as recipients of preferential transfers during the 90‑day prepetition period.
- Debtors filed adversary complaints to avoid preferences but failed to serve those complaints under Rule 7004; the complaints were not served and were later dismissed for failure to serve.
- Debtors instead served omnibus objections to the claimants’ proofs of claim under Bankruptcy Rule 3007 by U.S. mail, attaching copies of the unserved complaints and a declaration (Gund Decl.) listing alleged preference payments and amounts.
- None of the foreign claimants responded to the Rule 3007 objections, did not return the alleged preference amounts, and did not appear at the hearing.
- Court sustained the objections under 11 U.S.C. § 502(d), disallowed and expunged the claims, but allowed claimants an opportunity to seek reconsideration under § 502(j).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rule 3007 service by U.S. mail on foreign claimants is sufficient for claims objections | Debtors: Rule 3007 governs claim objections and authorizes mailing; service by mail to addresses supplied by claimants was proper | Claimants: (implicit) service must follow Rule 7004/FRCP 4(f) for foreign defendants in contested matters (i.e., Hague Convention methods) | Court: Rule 3007 governs claim objections; mailing by U.S. mail was sufficient, including to foreign claimants when mailed to addresses on schedules/claims |
| What showing is required under § 502(d) to disallow a claim based on alleged avoidable preference | Debtors: Copies of adversary complaints + Gund Decl. establish a prima facie showing that each claimant received an avoidable transfer and has not repaid it | Claimants: (none responded) would dispute liability or amount, requiring fuller adjudication | Court: A judicial determination that the claimant received an avoidable transfer (prima facie evidence here) is required before disallowance; where claimants received notice and failed to respond or repay, disallowance under § 502(d) is proper |
| Whether a creditor must be given a reasonable opportunity to turn over recoverable property before claims are disallowed | Debtors: Claimants had notice and reasonable opportunity after service of objections and hearing notice | Claimants: (implicit) disallowance should not occur without a post‑determination reasonable time to comply | Court: Claimants must be afforded a reasonable opportunity to repay after liability is determined; here they had notice and failed to act, so disallowance is appropriate but subject to § 502(j) reconsideration |
| Effect of § 502(d) on the entirety of a creditor’s claim when partial preference liability exists | Debtors: If creditor is liable for any avoidable transfer and has not repaid, the entire claim must be disallowed | Claimants: (implicit) disallowance should not necessarily void entire claim absent full adjudication or repayment | Court: § 502(d) requires disallowance of the claimant’s entire claim unless full repayment/turnover is made; disallowance may be reconsidered if claimant repays or obtains relief under § 502(j) |
Key Cases Cited
- Mulleme v. Central Hanover Bank & Trust Co., 389 U.S. 306 (supremacy of notice standard: reasonable notice to interested parties)
- Jorgenson v. State Line Hotel, Inc. (In re State Line Hotel, Inc.), 323 B.R. 703 (9th Cir. B.A.P.) (Rule 3007 governs claims objections; mailing suffices)
- United States v. Levoy (In re Levoy), 182 B.R. 827 (9th Cir. B.A.P.) (earlier decision applying Rule 7004/9014 to claims objections)
- Campbell v. United States (In re Davis), 889 F.2d 658 (5th Cir.) (§ 502(d) requires liability determination and a reasonable opportunity to comply before disallowance becomes effective)
- In re Atl. Computer Sys., 173 B.R. 858 (S.D.N.Y.) (section 502(d) requires some determination of claimant liability before disallowance)
- Enron Corp. v. Springfield Assocs., LLC. (In re Enron Corp.), 379 B.R. 425 (S.D.N.Y.) (discussion of § 502(d) and judicial enforcement policies)
- Sherman v. Novak (In re Reilly), 245 B.R. 768 (2d Cir. B.A.P.) (proofs of claim create prima facie evidence; objector must produce rebutting evidence)