*2 disallowances, April of those FLAUM, Before CUMMINGSand Circuit approximately five months after the bar LEE, Judges, Judge.1 District date, and under Rule 7015 of the Federal Rules, sought CUMMINGS, Judge. Circuit amend its claim for the total amount of penalties. income tax and related Accord- question presented appeal in this is IRS, ing to the the amended amount of the bankruptcy whether court abused its $2,449,- taxes owed the debtors was when, after the bar date for fil- amount, $2,435,078.39 claims, 523.74. Of re- ing it refused the Internal Revenue sulted from the debtors’ 1981 return and proof Service’s to amend a $14,445.35 unpaid resulted from income tax claim. The Internal Revenue Service had sought money for 1982. The amount of original proof to amend its the IRS sought in order to to collect in its amended increase the debtors’ 1981 tax claim was $11,132.93 liability $2,435,078.39, greater more than 220 times than the liability order to add tax timely amount it had claimed its filed year. tax additional Lee, Judge pleased The Honorable William C. District ors. That letter read are to tell "[w]e of the United States District Court for North- you your that after further consideration Indiana, sitting by designation. ern District of is [1981, periods returns for the above 1984], accepted (Appel- we have them as filed” ongo-
2. Whether or not the debtors knew of the App. lant’s ing disputed, meaning audit was as is the of a November IRS letter sent to the debt- have could bankruptcy court the amended objected debtors findings decision, 3) factual substantive based both claim on proof of v. E.R. Deitchman clearly the debtors erroneous. Both are grounds. procedural Sons, filed cross-motions Squibb & *3 ques- Cir.1984). procedural (7th on summary judgment should the amended claim of whether tion no excuse The asserted permitted. be Rule 7015 A. before file its second claim to its failure Bankruptcy analysis with our begin We failure to for its date or the bar 15 that “Rule Rule states That Rule 7015. date. the bar of adversary proceed applies F.R.Civ.P. per- to refused Judge Katz Bankruptcy objec filing of an "the Ordinarily, ings.” * * * and amendment requested mit the IRS’s is a contested proof of claim to a tion of on behalf summary judgment granted Ad adversary proceeding. matter,” held bankruptcy court the debtors. Rule Bankruptcy to Note visory Committee in kind dissimilar two claims that Unroe, noted Court But as this 9014. of amount, a consideration that and and 9014 348, Bankruptcy Rule F.2d at 937 permis- not warrant did factors equitable discretion, to court, extend at its permits court Thus that the amendment.3 sion of as well matters to contested Rule 7015 to its IRS’s limited the Rule In this case adversary proceedings. income 1984 $11,132.93 for and 1981 rea analogy for two apply should penalties. related and taxes First, VII Part of sons. to United judgment that appealed ment that to premise on the is “based rules Dis- for the Northern Court States District the bank before practice possible extent court, Writing for that Illinois. of trict district should ruptcy courts entered judgment affirmed
Judge Duff
Note
Committee
Advisory
the same.”
It
B.R. 127.
bankruptcy court.
by the
this
light
In
of
Rule 7001.
present
that
that
is from
courts
though
even
rationale
taken.
appeal was
so, many
courts
such
to do
required
are not
analogy.
Rule 7015
apply
choose
Analysis
II.
Inc., 67
See,
AM International
e.g.,
re
In
amend
a motion to
disposition of
re
also In
(N.D.Ill.1986); see
79, 81
B.R.
discre
the sound
falls within
proof of claim
(Bankr.
n. 2
B.R.
Calisoff, 94
bankruptcy court. See
of the
tion
ap
Second,
district court
N.D.Ill.1988).
(7th
Unroe,
937 F.2d
Matter
agree
parties
and both
Rule 7015
plied
38, 40
Hill, 833 F.2d
Cir.1991); Deasy v.
well.
Rule 7015 as
apply
Court should
this
denied,
Cir.1987),
(4th
certiorari
reasons,
apply Bankruptcy
these
For
483; In re
1271, 99 L.Ed.2d
S.Ct.
it,
Federal Rule
through
Rule
Inc.,
Horizons,
International
Procedure
Civil
Lanman,
Cir.1985); In re
(11th
1213, 1216
Civil Procedure
Rule of
Federal
On
(Bankr.N.D.Ill.1982).
741, 743
24 B.R.
may amend
“a
15(a)
provides
that decision
this Court reviews
appeal,
of court
by leave
pleading
party’s
course, review
Of
discretion.
abuse of
party;
adverse
of the
consent
by written
standard
the abuse
on
based
when
freely
leave shall be
In re
no
review.
appellate
mean
does
liberal
favors
Rule 15
requires.”
so
(7th
217-218
Ronco,
insure
in order
pleadings
an abuse
standard
Cir.1988).
Under
on
merits.
of claims
consideration
1)
if
decision
found
will be
of discretion
generally
should
leave
But while
conclusion
an erroneous
was based
it is
have noted
granted, courts
on be
no evidence
law, 2)
record contains
However,
latter
not raised that
it has
sought permission of
3. Below
taxes,
respect to the 1981
with
issue in this
under
15 and
Rule
under
its amendment
re
that issue with
argument for
its brief
Miss Glam
in In re
principles
forth
set
merit.
without
(S.D.N.Y.
taxes is
spect to
(P-H)
Coat,
46 A.F.T.R.2d
our
inappropriate
proofs
in some
circumstances. Ame
of claim
have “little correlation
(7th
Bayer,
ndola v.
907 F.2d
to the final relative
amounts which credi-
Cir.1990)
denial of leave to
(affirming
distribution,”
any
tors will share
pri-
1) litigant
amend claim where
aware
marily serve to determine “the universe of
underlying
the facts
the claim before the
participants in the
case.”
debtor’s
In re
filing
presented
deadline and
no excuse for Kolstad,
Cir.
—
failing
earlier, 2)
oppos
raise the claim
1991),
U.S.-,
certiorari
ing party
unduly prejudiced,
would be
S.Ct.
had no reason to the debt believe permit government’s might be so The debtors in extensive. First, bankruptcy claim. court made a govern disclosure statements finding although factual plan no original proof ment its of claim had during confirmed the IRS’s five-month de dispute estimated the amount in approxi at lay, prejudice its amendment other $10,000-$12,000. mately creditors who had no notice of been government ongoing asserts notice of IRS’s audit and relied on the the amount of claim general is immaterial because amount of claim listed in the permits A rule which second, reasons. other valid And original proof in such situations to claims justifica- excuse or amendments no government offered increasing a secondary notifying the court effect delay in for its has tion potential amendment. of its a claim. party’s other creditors time noted, it would per- required As the bankruptcy courts are for the minimal effort have taken primarily are amendments mit late of the bar ment bar- route secure a back-door used as and the court notify the or to creditors date otherwise, rule Were date extensions. had government ongoing audit. The help itself to auto- effectively could It give notice. failure to for its no excuse date without of the bar extensions matic into official its tardiness had enshrined the court. leave of seeking manual, sec. Revenue policy. Internal unqualified If the proof of “An amended 57(13) reads: 2.463 proofs to amend the bar date right after bar subsequent to the filed for no any reason or dramatically for date classification long as the tax so all, date at bar reason timely in a period included taxable meaningless. Under would be proceedings (A.3) add- (emphasis claim” proof of filed grossly file view, every could creditor *5 ed).4 claim and later misleading proofs of permitting amendments purpose of The leisure, right at as of those claims party a to “enable assert pleadings is ex- the they to calculate decided whenever un- or overlooked were were matters that owed. debt claimed actual tent of interposed his time he him at the known to prompt need for bankruptcy court’s The Wright, complaint or original answer.” a bar disputes necessitates resolution Practice and Federal Kane, Miller and If a credi- filing proofs date for Procedure, (1971). a Often analyzing information after that tor knows response to new complaint in will amend it its own control wholly within is discovery, to cor- in obtained information drastieal- amend its claim seek to later or for numerous pleadings, rect insufficient deduc on disallowed permit claim based the the amended bankruptcy elects to 4. If the the tax 15(a), "sufficiently from dissimilar tions that proof claim Rule amended under (App. proof original of claim” original in the the es claimed back to claim does relate amended government that because counters the long amendment concerns as the claim as involved the year. claims both original amended the same tax and tax for same kind tax, tax, the for 15(c), portion type income of Rule 15 individual the other same F.R.Civ.P. 1981, they out of year, therefore proceeding, in arise states relevant tax this same relevant to conduct, or occurrence. transaction part: the same 349; Unroe, at Commis 937 F.2d agree. We See in defense asserted the claim or "Whenever 591, 598, Sunnen, 68 S.Ct. v. U.S. sioner pleading out of the con- arose the amended duct, transaction, (1947) (stating income L.Ed. 898 set forth or or occurrence "each basis annual and are levied taxes original plead- attempted in the to be set forth sepa liability origin year of a new the is back to the ing, amendment relates date judica- purposes of res of action” rate cause pleading.” original ta). proof sought a tax of claim second analy- Applying or occurrence this transaction in amount payment different from case, gov- immediately reject the sis to this Granted, in amount difference first. tax claim that new ernment’s $14,445.35 drastic, disparity is relevant while the $11,- but original back relates prejudice as un such considerations for 1981 and 1984 taxes. of claim 329.93 15(a), negate the fact that it does not der Unroe, Rule clearly stated As this Court the same arose transaction. both sepa- claims "Separate years imply year, just last Fitzger Maryland Fidelity Deposit Co. v. at under 7015.” Id. Bankr.R. rate claims Cir.1959) (stating ald, 1982 taxes does a claim for 349. Therefore does change amount of the in the original "[a] claim for to an relate back claim”), certio different it a new and not make taxes. L.Ed.2d 80 S.Ct. respect to the 1981 rari the result with $2,435,078.39 arose from 738. Because amendment is less obvious. amendment claim, same transaction bankruptcy that under 15's court held Rule amendment, permitted it theory and occurrence transaction 15(c) for rela met Rule standards have proposed did not relate back ment’s sought taxes tion back. original claim because the to its ly, keep knowledge it must not any faith, secret. Without evidence of bad or so, surprises prejudice creditors, If it does and later debtor to the other disrup- creditors, orderly discharge or other not claim tion of it should sur- of the bankrupt- prise cy, if the the lack of an deny court elects to is not enough to overcome amendment. the interest of allowing assert IRS to its claim.1 required,
Because amendment was not of the district court is af- firmed.
FLAUM, Judge. Circuit respectfully my judgment,
I dissent. bankruptcy judge his abused allowing to amend its claim. Leave to amend is to be QUALITY PARENTS FOR EDUCATION freely, according (Fed. to both the rule INTEGRATION, WITH INCORPORAT 15(a)) (Foman R.Civ.P. the case law v. ED, Scepter Brownlee, by his mother Davis, 371 U.S. 83 S.Ct. friend, Brownlee, Torrey and next Ora (1962); Thompson, 9 L.Ed.2d Eades v. Cook, by parents friends, his and next (7th Cir.1987)). Regina Cook, al., Cook Richard et majority explains As the at footnote Plaintiffs-Appellees, the amended claim relates back and there- v. 15(c). case, fore satisfies Rule In this none *6 INDIANA, Bayh, STATE OF Evan Gover the relevant factors out- Indiana, Linley nor of the State of E. weighed in permit- interest of Pearson, Attorney General of the State ting attempt recovery Indiana, Evans, Dr. Dean H. State funds to which it was entitled. No creditor Superintendent of Public Instruction objected has to the IRS’ amended claim. and Chairman of the State Board of audit, ongoing The debtors knew of the Education, Dickson, Dr. David Ted O. presumably of the amount of deductions Marston, McFann, L. Paul L. David H. they had claimed. The amendment would Swanson, Blackketter, Marga Connie delay plan; confirmation of a final it Kelley, Cook, ret Ann Dr. Norma J. long delayed has been by other matters. Startin, O’Rear, Katherine L. Patrick J. There is no evidence of faith bad on the Hawkins, Grant W. Members of the part of the I IRS. am unable to accede to Education, Indiana State Board of judge’s decision to assert Education,* Department Indiana De prejudice on behalf of the other creditors— fendants-Appellants. yet this would be the reasonable basis itself, denying leave By to amend. No. 91-3437. IRS’ failure to ask for an extension to Appeals, United States Court of amend its provide claim cannot sufficient Seventh Circuit. support for court’s deci- (The sion. “negligence” IRS’ Argued April resulted 1992. following the Internal Revenue manu- Decided Oct. 1992. al, 57(13) 2.463, which the bankruptcy majority interpret, court and the perhaps
understandably, treating the bar date
lightly.) part majority’s opinion I concur in that current members of the Indiana State Board of rejects government’s new have been for Dr. Education substituted Robert $14,445.35. claim for Tucker, Moeller, Krajewski, Randall T. Jeanette
* Hanni, 43(c)(1), Fed.R.App.P. McNagny, Bayh Pursuant Joan B. Klene, Evan Dr. Robert Ronald Orr, Jerrell, Bynum, has been substituted for Bettye Robert Theressa Lou G.