Kipp Flores Architects, LLC v. Mid-Continent Casualty Co.
852 F.3d 405
| 5th Cir. | 2017Background
- Kipp Flores Architects (KFA) licensed designs to Hallmark Collection; Hallmark built many homes beyond its license and KFA sued for copyright infringement in 2009.
- Hallmark Collection filed Chapter 7 (no-asset) bankruptcy; trustee sent a no-asset notice advising creditors not to file claims unless later notified.
- KFA nevertheless filed a proof of claim for ~$63.5 million after receiving a later notice; no deadline for objections was set, and no party in interest objected.
- The trustee later reported there were actually no assets; the Hallmark Collection case closed with no adjudication allowing or disallowing KFA’s claim.
- KFA sued Hallmark Collection’s insurer, Mid-Continent, claiming the unobjected-to bankruptcy proof of claim was “deemed allowed” under 11 U.S.C. § 502(a), thus a final judgment triggering insurer indemnity.
- The district court granted summary judgment for Mid-Continent; the Fifth Circuit affirmed, holding that in a no-asset Chapter 7 case with no notice to parties to object, an unadjudicated proof of claim is not a “deemed allowed” judgment with preclusive effect.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does an unobjected-to proof of claim in a no-asset Chapter 7 case become a "deemed allowed" final judgment under 11 U.S.C. § 502(a)? | KFA: § 502(a) is plain — any filed proof of claim not objected to is deemed allowed and becomes final, giving res judicata effect against insurer. | Mid-Continent: In a no-asset case the claims-allowance process is not triggered; absent notice/deadline and a bankruptcy purpose, § 502(a) does not produce a final, preclusive judgment. | Held for Mid-Continent: § 502(a) must be read with Code, Rules, and Forms — in no-asset cases without notice/deadline and no distributable assets, a filing does not yield a deemed-allowed final judgment. |
Key Cases Cited
- In re Simmons, 765 F.2d 547 (5th Cir. 1985) (explaining the codal structure for allowance/disallowance of claims)
- Pioneer Investment Serv. Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380 (U.S. 1993) (bankruptcy courts marshal assets for distribution)
- Beezley v. California Bank & Trust, 994 F.2d 1433 (9th Cir. 1993) (no-asset cases may dispense with filing proofs of claim)
- Siegel v. Federal Home Loan Mortgage Corp., 143 F.3d 525 (9th Cir. 1998) (holds unobjected proofs are deemed allowed but distinguishable on facts)
- Matter of Wood, 825 F.2d 90 (5th Cir. 1987) (bankruptcy jurisdiction requires a conceivable effect on the estate)
- Sosebee v. Steadfast Insurance Co., 701 F.3d 1012 (5th Cir. 2012) (distinguishing treatment of insurance policies vs. liability insurance proceeds)