Bankruptcy Court Has Jurisdiction To Consider Proof Of Claim Objection Even In Absence Of Jurisdiction Over Underlying Cause of Action
May 20, 2008
Let’s say a proof of claim is filed in a bankruptcy case. The proof of claim is for a personal injury claim that, under normal circumstances, would be outside the bankruptcy court’s jurisdiction. When the debtor objects to the filed claim, can the bankruptcy court then exercise jurisdiction so as to hear the underlying claim?
Yes, says the U.S. Bankruptcy Court for the Southern District of New York in the recent case of In re Alper Holdings USA, 2008 WL 1389771 (Bankr.S.D.N.Y. 2008). In this case, the Court dealt with exactly this question - could it consider a personal injury claim over which it other had no jurisdiction?
Section 157(b)(2) of title 28 of the United States Code provides a non-exhaustive laundry list of matter that fall within the category of “core” proceedings, and specifically excludes the “liquidation or estimation of contingent or unliquidated personal injury or wrongful death claims against the estate for purposes of distribution in a case under title 11.” Section 157(b)(5) goes to say that “the district court
shall order that personal injury tort and wrongful death claims shall be tried in the district court in which the bankruptcy case is pending. . . .”
The Court sidesteps this problem by noting that the proof of claim does not concern “the liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims” so as to implicate Section 157(b)(2)(B), but rather merely concerns the allowance or disallowance of timely filed proofs of claim as a matter of law.
The bankruptcy courts in the Second Circuit have repeatedly held that proceedings to determine the allowance or disallowance of claims are core matters. See Gulf States Exploration Co. v. Manville Forest Prods. Corp. (In re Manville Forest Prods. Corp.), 896 F.2d 1384, 1389(2d Cir.1990); Enron Power Mktg., Inc. v. Nevada Power Co. (In re Enron Corp.), No. 03-09332, 2004 WL 3015256, at *5 (S.D.N.Y. Dec. 28, 2004); In re Chateaugay Corp., 111 B.R. 67, 76 (Bankr.S.D.N.Y.1990).
So why does this matter to you, the consumer bankruptcy lawyer who seldom confronts these issues? The next time you object to an inaccurate proof of claim filed by a mortgage servicer or debt buyer, there is some chance that the creditor will state that the bankruptcy court does not have jurisdiction to consider the underlying debt inasmuch as it is created and controlled by state and non-bankruptcy law. Using the holding in this case, you may be able to keep the ear of your bankruptcy court to secure a favorable ruling for your client.
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