August 5, 2011 Eleventh Circuit Rules that Post­Confirmation Amendment to Proof of Claim is Barred Absent “Compelling Circumstances”  This Bulletin addresses the perils of amending a proof of claim after a debtor’s plan has been confirmed by the bankruptcy court. This Bulletin is especially useful to creditors whose claims may change throughout the course of a bankruptcy case, such as creditors with contract or lease rejection damage claims or contingent claims.  Amending a proof of claim is a typical creditor practice in a bankruptcy case. Courts apply a liberal pleading standard and amendments to claims are therefore “freely granted.” This is so even where the amendment is filed after the claims bar date, so long as the amendment does not constitute a new claim against the debtor. Recently, the Court of Appeals for the Eleventh Circuit clarified the requirements for filing an amendment to a proof of claim after plan confirmation. In the case of IRT Partners, L.P. v. Winn Dixie Stores, Inc. (In re Winn Dixie Stores, Inc.), 639 F.3d 1053 (11th Cir. 2011), the 11th Circuit held that absent “compelling circumstances,” a post‐confirmation amendment to a claim is impermissible under the doctrine of res judicata. “Res judicata” is the legal principle that bars reconsideration of a claim that has been previously litigated by the parties to final judgment. Under well‐established bankruptcy principles, “confirmation of a reorganization plan is equivalent to a final judgment in a civil action, which extinguishes the claim and substitutes for it a judgment, which defines the new obligations of the parties.” Thus, res judicata prevents modification of the creditor’s claim after plan confirmation absent “compelling circumstances.” The 11th Circuit expressed concern that post‐confirmation amendments to claims could render a plan infeasible or alter the distribution to other creditors. This decision falls squarely in line with a similar ruling by the Court of Appeals for the Seventh Circuit. See Holstein v. Brill, 987 F.2d 1268 (7th Cir. 1993). In Winn‐Dixie, the 11th Circuit found that “compelling circumstances” did not exist where the creditors had accepted distributions under the debtor’s confirmed plan of reorganization in satisfaction of their claims. Further, the creditors had failed to exercise diligence in protecting their claims during the pendency of the bankruptcy case (e.g., by not filing notices of appearance in the bankruptcy case, failing to object to the debtor’s plan, and failing to respond to the debtor’s objections to their claims). WHY YOU SHOULD READ THIS BULLETIN Winn‐Dixie has broad application to all types and classes of creditors, especially those creditors whose claims may change or materialize over the course of a bankruptcy case. Winn‐Dixie is of particular relevance to creditors who have executory contracts or unexpired leases that are capable of rejection, as well as claimants with contingent claims. Such creditors should carefully watch the timeline of the bankruptcy case and file any claim amendments before plan confirmation. In the event that amendment before plan confirmation is not possible, the creditor should be prepared to explain why the amendment was not timely filed. For questions/comments regarding this Bulletin, or a copy of the decision, please contact the author. Monika J. Machen | Shareholder
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