In Re W.R. Grace & Co.

United States Bankruptcy Court, D. Delaware

Apr 17, 2007

17-12745

Versions:

MEMORANDUM OPINION 1

JUDITH K. FITZGERALD, Bankruptcy Judge.

The matter before the court is Debtors’ request for the disallowance of 71 property damage claims filed and signed by the law firm of Speights & Runyan (“Speights”) for which Speights failed to establish that authority existed prior to the March 31, 2003, bar date. Written authority to file the claims was either undated or dated after the March 31, 2003, deadline.

After filing for Chapter 11 bankruptcy, Debtors received 4,200 asbestos property damage (“PD”) claims relevant to this proceeding, of which 2,938 were filed by Speights. None of the proofs of claim were personally signed by the actual claimants: 1,862 were signed by Daniel Speights and 1,076 were signed by Amanda Steinmeyer of the Speights firm. Since the entry of Debtors’ Thirteenth Omnibus Objection to 2,937 Unauthorized Claims Filed by the Law Firm Speights and Runyan (Substantive), 2 a substantial number of the claims have been withdrawn by Speights or expunged by this court. 3 Pursuant to the court’s order 4 , Speights provided Debtors with copies of written authorizations that the firm claimed established the authority of Speights to represent each claimant in this proceeding. For the 71 claims presently in question, Speights provided written authorizations which are either undated or dated after the March 31, 2003 bar date. 5 The parties submitted briefs 6 and a hearing was held to address these 71 claims on August 21, 2006. 7 For the reasons which follow these claims will be disallowed and expunged.

Federal Rule of Bankruptcy Procedure 3001(b) provides that “A proof of claim shall be executed by the creditor or the creditor’s authorized agent.” 8 Citing In re Standard Metals Corp., 817 F.2d 625 (10th Cir.1987), cert. dismissed, 488 U.S. 881, 109 S.Ct. 201, 102 L.Ed.2d 171 (1988); In re Griffin Trading Co., 270 B.R. 883 (Bankr.N.D.Ill.), aff'd, 270 B.R. 905 (N.D.Ill.2001); and In re FIRSTPLUS Financial, Inc., 248 B.R. 60 (Bankr.N.D.Tex. 2000), Grace contends that the party signing the proof of claim must have explicit or express authority to act as an agent of the claimant at the time of filing. Speights, on behalf of the 71 claimants, asserts that Rule 3001(b)’s requirement of an “authorized agent” can be satisfied through ratification by the claimants of the attorney’s previously unauthorized act.

The attorney-client relationship is a principal and agent relationship governed by the law of agency and therefore subject to the doctrine of ratification. In re Land, 215 B.R. 398 (8th Cir. BAP (Iowa) 1997); Lenfest v. Boston & Maine Corp., 537 F.Supp. 324 (D.Mass., 1982); North Bend Senior Citizens Home, Inc. v. Cook, 261 Neb. 500, 623 N.W.2d 681, 688 (2001); Riddle v. Commonwealth, 864 S.W.2d 308, 311 (Ky.App., 1993); Free v. Wilmar J. Helric Co., 70 Or.App. 40, 688 P.2d 117, (1984), review denied, 298 Or. 553, 695 P.2d 49 (1985). “Ratification results when a principal affirms a previous unauthorized act by his agent ... In essence, ratification by a principal of his agent’s unauthorized act is equivalent to the agent having that particular authority from the beginning.” In re Packer Ave. Associates, 1 B.R. 286 (Bankr.E.D.Pa. 1979). See also Lewis v. Vogelstein, 699 A.2d 327 (Del.Ch.1997). Ratification creates the principal and agent relationship, regardless of whether the agent has prior authority. Zee se v. Siegel’s Estate, 534 P.2d 85 (Utah 1975); Strader v. Haley, 216 Minn. 315, 12 N.W.2d 608 (1943); Rakestraw v. Rodrigues, 8 Cal.3d 67, 104 Cal.Rptr. 57, 500 P.2d 1401 (1972). See also 3 Am. Jur. 2d Agency § 198 (2006). Courts have held that a principal may ratify the forgery of his signature by an agent. Volandri v. Hlobil, 170 Cal.App.2d 656, 339 P.2d 218 (1st Dist., 1959); Kadota Fig Asso.of Producers v. Case-Swayne Co., 73 Cal.App.2d 815, 167 P.2d 523 (3rd Dist., 1946).

Application of the doctrine of ratification to certain actions in bankruptcy cases has been upheld by the Court of Appeals for the Third, Fourth, and Eighth Circuits. In In re Eastern Supply Co., 267 F.2d 776 (3d Cir.), cert. denied, 361 U.S. 900, 80 S.Ct. 208, 4 L.Ed.2d 156 (1959), appellant sought dismissal of a bankruptcy petition because the attorney who signed the petition did not have authority from the debtors until after the petition had been filed. The Court of Appeals for the Third Circuit held that the unauthorized filing of a bankruptcy petition can be ratified and that ratification relates back to the original filing. In Hager v. Gibson, 108 F.3d 35 (4th Cir.), aff'd in part, rev’d in part on other grounds, 109 F.3d 201 (4th Cir.1997), the Court of Appeals for the Fourth Circuit held that the unauthorized filing of a voluntary petition for a corporation could be ratified by the ensuing conduct of persons with the power to have authorized it originally and that the ratification related back to the original petition date. See also, Boyce v. Chemical Plastics, 175 F.2d 839 (8th Cir.), cert. denied, 338 U.S. 828, 70 S.Ct. 77, 94 L.Ed. 503 (1949). “The law is clear that the binding effect of an agent’s acts is not necessarily dependent upon the existence of the authority at the time the act was performed. Rather, acts which are performed outside the scope of an agent’s authority, or which are performed by one who is not even an agent may be ratified by the principal.” Matter of Mickler, 50 B.R. 818, 827 (Bankr.M.D.Fla., 1985), citing Armstrong v. Blackadar, 118 So.2d 854 (Fla.App. 2 Dist., 1960).

As stated above, Debtors cite Standard Metals, Griffin Trading, and FIRST-PLUS, to support their assertion that un der Rule 3001(b) authority must exist at the time of filing of the claim. However, these cases do not conflict with the application of the doctrine of ratification. Because ratification by a principal of an agent’s unauthorized act is equivalent to the agent having that particular authority from the beginning, ratification relates authority back to the time of filing. In fact, FIRSTPLUS recognized retroactive authorization through ratification, stating that “an agent has only the authority to do certain acts if the authority is given to him by the principal prior to doing those acts, or if the principal ratifies those acts after the fact.” 248 B.R. at 69. Ratification was not permitted in FIRSTPLUS because it was provided by the putative class representative, not the principals “in whom the power to ratify such acts vests.” Id. In the present case, the principals, i.e., these claimants, have ratified the unauthorized filing by Speights.

As explained above, as a general matter, unauthorized acts can be ratified or affirmed. However, ratification is not effective when it takes place after a deadline. Federal Election Com’n v. NRA Political Victory Fund, 513 U.S. 88, 115 S.Ct. 537, 130 L.Ed.2d 439 (1994). See also Restatement (Second) of Agency § 90 (1958)(“If an act to be effective in creating a right against another or deprive him of a right must be performed before a specific time, an affirmance is not effective against the other unless made before such time.”) In Federal Election, the Federal Election Commission filed a writ of certiorari without the necessary authorization from the United States Solicitor General. The Supreme Court held that the Solicitor General’s authorization, which was filed after the 90-day statutory period for filing certiorari petitions expired, did not relate back to the date of the original unauthorized filing so as to make it timely.

In the bankruptcy cases cited above, Eastern Supply, Hager, Boyce, and Mick-ler, where ratification was upheld, the timing of the filing was not at issue; rather the validity of the filing was contested. No deadlines were compromised by permitting the ratification. Here, however, the proof of claim bar date expired prior to the acts of ratification.

The Supreme Court’s concern in Federal Election was that allowing the late authorization would grant the Solicitor General unilateral power to extend the 90-day deadline to file a certiorari petition despite the limitations period enacted by 28 U.S.C. § 2101(c). Similarly, the court in Town of Nasewaupee v. City of Sturgeon Bay, 77 Wis.2d 110, 251 N.W.2d 845 (1977), explained that, “Ordinarily, a subsequent ratification relates back to the time of the original transaction. However, that rule is not applicable when the rights of others have intervened by the passage of time. The rule presupposes that the principal who could have acted initially retains that power at the time of the ratification. Such is not the case here.” In Nasewaupee, the court refused to recognize the ratification of the unauthorized commencement of a lawsuit, where ratification came after the statute of limitations had run. In the present case, ratification occurred after the bar date had passed.

In Federal Election, the Supreme Court relied upon its decision in Cook v. Tullis, 85 U.S. (18 Wall.) 332, 21 L.Ed. 933 (1874), a bankruptcy case, which explained the limitations on ratification. The Supreme Court in Federal Election said, “... it is essential that the party ratifying should be able not merely to do the act ratified at the time the act was done, but also at the time the ratification was made.” 513 U.S. at 98, 115 S.Ct. 537, quoting Cook v. Tullis, 85 U.S. (18 Wall.) 332, 338, 21 L.Ed. 933 (1873). This is a significant point on the facts before us. Claimants themselves would not be permitted to file proofs of claims after the bar date. Therefore, they held no ability to ratify Speights’ act when the ratification was made. Allowing ratification after the bar date would give the claimants the unilateral power to extend the deadline established by the bar date. It would be unfair to the Debtors and the other creditors who properly and timely filed their claims, to afford more flexibility to these 71 claimants.

Additionally, allowing claimants to use late ratification to extend the deadline established by the bar date compromises the underlying purposes of a proof of claim bar date.

The practical, commercial rationale underlying the need for a bar date are [sic] manifest. The creditors and bankruptcy court must be able to rely on a fixed financial position of the debtor in order to evaluate intelligently the proposed plan of reorganization for plan approval or amendment purpose [sic]. After initiating a carefully orchestrated plan or reorganization, the untimely interjection of an unanticipated claim, particularly a relatively large one, can destroy the fragile balance struck by all the interested parties in the plan.

In re Analytical Systems, Inc., 933 F.2d 939, 942 (11th Cir.1991). Allowing ratification of unauthorized claims beyond the bar date would leave the door open indefinitely for claims to disrupt the reorganization process.

For the reasons stated above, the 71 claims ratified after passage of the bar date will be disallowed and expunged.

An appropriate order will be issued.

Notes

. The court's jurisdiction was not at issue. This Memorandum Opinion constitutes our findings of fact and conclusions of law.

. Doc. No. 9311.

. See, e.g., Order Allowing Withdrawal of Certain Claims Filed by the Law Firm of Speights and Runyan, Doc. No. 9517 (259 claims disallowed and expunged for all purposes); Order for the Withdrawal and Expungement of 1495 Asbestos Property Damage Claims, Doc. No. 10961; Order Disallowing and Expunging Anderson Memorial-Based Asbestos Property Damage Claims Filed by Speights and Run-yan, Doc. No. 11080 (534 Anderson Memorial Out of State PD Claims and 51 Anderson Memorial South Carolina PD Claims).

. The Order dated September 23, 2005, required Speights & Runyan to provide the Debtors with evidence pertaining to the status of claims, including "a list of all pending claims filed by Speights & Runyan for which the claimant has provided express written authorization to file the claim and a copy of the document or, if redacted, the portion of the document that contains such proof of express written authority.” Order Granting Relief and Directing Certain Discovery with Respect to Speights & Runyan, Doc. No. 9501.

. Debtors filed their motion for a bar date on June 27, 2001, and the court entered the Bar Date Order on April 22, 2002, establishing March 31, 2003, as the claims bar date. Therefore, Speights had nearly two years between the bar date motion and the expiration of the bar date and eleven months between entry of the Bar Date Order and the expiration of the bar date during which he could have obtained authority to file the claims.

. Debtors' Brief in Further Support of the Disallowance of 71 Claims Where Speights Lacked Authorization as of the Bar Date, Doc. No. 11712; Debtors' Surreply in Support of the Disallowance of 71 Claims For Which Speights & Runyan Has Not Established Authority to File as of March 31, 2003, Bar Date, Doc. No. 11621; Anderson Memorial Hospital's Further Memorandum in Opposition to the Debtors' Thirteenth Omnibus Objection: Ratification of Authority by Claimants, Doc. No. 11709; Certain Speights & Runyan Claimants’ Sur-Reply in Opposition to the Debtors’ Thirteenth and Fifteenth Omnibus Objections, Doc. No. 11594.

. Hearing Transcript, Doc. No. 13077.

. Federal Rule of Bankruptcy Procedure 3004 deals with claims filed by the debtor or trustee and Rule 3005 deals with claims filed by co-debtors.