Document Type
Research Memorandum
Publication Date
2012
Abstract
(Excerpt)
The Federal Rules of Bankruptcy Procedure (the “Rules”) make class action procedures available to litigants in bankruptcy litigation. However, the Bankruptcy Code (the “Code”) and Rules leave open the question of whether a class representative may file a class proof of claim on behalf of a putative class. Because the Code and Rules are silent, bankruptcy courts have to look to case law to “fill the gaps.” Different courts have adopted different interpretations, and a circuit split has emerged regarding the permissibility of class proofs of claim.
Initially, most bankruptcy courts and the first court of appeal that addressed the issue concluded that class proofs of claim were not permissible in bankruptcy. These courts conceded that Rule 23 of the Federal Rules of Civil Procedure (“Rule 23”) applies in bankruptcy litigation, but argued that § 501 of the Code provides an exhaustive list of entities that may file a proof of claim. Since § 501 does not mention class representatives, these courts held that each class claimant has to file an individual proof of claim and then have their claims certified by moving the bankruptcy court to apply Rule 23 to their claims. Moreover, these courts noted that Rule 3001(b), requires that “[a] proof of claim shall be executed by the creditor or the creditor’s authorized agent . . . .” These courts also note that Rule 2019 requires any representative of more than one creditor to file a verified statement. Since class representatives will most likely not have obtained the requisite authorization as the creditors’ agents, they cannot file a class proof of claim.
The next three courts of appeal to decide the issue held that a class representative may file a class proof of claim on behalf of a putative class. These courts relied on the Rules and the legislative history of the Code for support. The courts reasoned that Rule 23 can already be applied to bankruptcy litigation, and Congress did not expressly prohibit the filing of class proofs of claim. These courts further reasoned that even though § 501 of the Code dos not expressly mention class representatives, a narrow reading of it would render Rules 7023 and 3001(b) meaningless. Lastly, since Congress intended bankruptcy proceedings to be available to the “widest possible range of players,” the right to file a class proof of claim is secure. After the three courts of appeal held this way, lower courts generally followed suit, and a majority of courts now allow a class representative to file a class proof of claim on behalf of a putative class.
Part I of this memorandum discusses the relevant Rules concerning class actions and class proofs of claim. Part II discusses the split among the circuits as to whether class proofs of claim are allowed in bankruptcy and why the circuits disagree with each other. The memorandum concludes with the practical consequences of allowing or disallowing class proofs of claim and how either conclusion does not circumvent the stringent requirements of having a group of claimants certified as a class.