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In re Residential Capital, LLC

United States District Court, S.D. New York

May 1, 2014



PAUL A. ENGELMAYER, District Judge.

Appellant Tom Franklin ("Franklin") appeals pro se from a September 16, 2013 Order of the United States Bankruptcy Court for the Southern District of New York (Glenn, J.) ("Order") expunging Franklin's claims against the chapter 11 estate of Appellee Residential Capital, LLC ("ResCap") and its affiliated debtors (collectively, "Debtors"), on the ground of insufficient documentation. For the following reasons, the Order is affirmed and Franklin's appeal is denied.

I. Background[1]

ResCap is a residential real estate finance company indirectly owned by non-debtor Ally Financial, Inc. ("Ally Bank"). The Debtors and Ally Bank are, collectively, the tenth largest originator and fifth largest servicer of residential mortgage loans in the United States. On May 14, 2012, the Debtors filed petitions in the bankruptcy court for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). Bankr. Dkt. 1.

On May 16, 2012, the United States Trustee for the Southern District of New York (the "Trustee") appointed an Official Committee of Unsecured Creditors (the "Creditors' Committee"), pursuant to sections 1102(a) and 1102(b) of the Bankruptcy Code. Bankr. Dkt. 102. On December 11, 2013, the bankruptcy court issued an order approving the second amended Chapter 11 plan proposed by the Debtors and the Official Committee of Unsecured Creditors. Bankr. Dkt. 6065 ("Plan"). The Plan provides for, inter alia, the creation of a trust for prosecuting objections to claims filed by "Borrowers, " with a "Borrower" defined as a person who is or was a mortgagor under a mortgage loan originated, serviced, and/or purchased by one or more of the Debtors (the "Trust"). Id. App'x 1 at 5.

On March 21, 2013, the bankruptcy court issued an Order approving, pursuant to section 502(b) of the Bankruptcy Code and Federal Rule of Bankruptcy Procedure Rule 3007(d), procedures for the filing of omnibus objections to proofs of claim in the chapter 11 proceeding. Bankr. Dkt. 3294 ("Claim Objection Procedures Order"). The Claim Objection Procedures Order authorizes the Debtors to file omnibus objections to multiple Borrower Claims at a time, and sets forth various grounds on which the Debtors may object to a Claim (in addition to those grounds set forth in Federal Rule of Bankruptcy Procedure 3007(d)), including on the ground that "the Claims do not include sufficient documentation to ascertain the validity of the Claims[.]" Id. at 2, 7. That Order further provides that prior to filing an objection to a Borrower Claim for insufficient documentation, the Debtors must

contact the holders of such Claims by mailing a document request letter, in a form mutually acceptable to the Debtors and Special Counsel to the [Creditors'] Committee (the "Request Letter"), to such Borrower, or counsel thereto if known, in an attempt to obtain information regarding the factual and legal basis of the respective asserted Borrower Claim... within two (2) weeks after finalizing a Borrower Claim List.

Id. at 4 (bold face omitted).

On October 12, 2012, Franklin filed a proof of claim against the chapter 11 estate, labeled for identification as Claim No. 1195 (the "Franklin Claim" or the "Claim"), in the amount of $134, 000. See Bankr. Dkt. 4828 Ex. 1. Franklin listed "loan modification refused" as the basis for his claim, but failed to supply any supporting documentation. Id.

Upon review, the Debtors determined that the Franklin Claim lacked adequate documentation and had no basis in the Debtors' books and records. Accordingly, after consulting with the Special Counsel to the Creditors Committee, the Debtors, in May 2013, sent Franklin a Request Letter. See Bankr. Dkt. 4158 Ex. 1 (Declaration of Deanna Horst in Support of Debtors' Twenty-First Omnibus Objection to Claims (Borrower Claims with Insufficient Documentation) ("Horst Decl.")) ¶ 4. The Request Letter stated in pertinent part that "you must respond to this letter [within 30 days] with an explanation that states the legal and factual reasons why you believe that one of the Debtors owed you money as of May 14, 2012... and, you must provide copies of any and all documentation that you believe supports the basis for your claim." Bankr. Dkt. 4158 Ex. 4 ("Model Request Letter"). It further advised Franklin that failure to provide the requested documentation within 30 days could result in his claim being "disallowed and permanently expunged." Id.

Franklin failed to respond to the Debtors' request for additional documentation. See Horst Decl. ¶ 4. Accordingly, on July 3, 2013, the Debtors filed the Twenty-First Omnibus Objection to Claims, which sought to have several claims, including the Franklin Claim, expunged on the ground of insufficient documentation. See Bankr. Dkt. 4158 ("Omnibus Objection"). The Debtors provided notice to affected parties, including Franklin, that responses to the Omnibus Objection must be made in writing and served no later than August 5, 2013, and that a hearing on the Omnibus Objection would take place before the bankruptcy court on August 21, 2013. See id. That hearing was later adjourned to September 11, 2013. See Bankr. Dkt. 4872. On September 9, 2013, claimants were provided notice that the bankruptcy court had "authorized parties outside of the New York City area appearing in this case to attend [the hearing] telephonically, " and provided an explanation of how to participate remotely. Bankr. Dkt. 4995.

Franklin filed three responses to the Omnibus Objection-on July 18, 2013, Bankr. Dkt. 4282 ("July 18 Response"); on September 5, 2013, Bankr. Dkt. 4961 ("September 5 Response"); and on September 6, 2013, Bankr. Dkt. 4980 ("September 6 Response"). In each, Franklin stated generally that he "is owed money by the debtor, " that he has "a legitimate creditor claim, " and that dismissing his claim "would be unfair and unsubstantiated." July 18 Response; see also September 5 Response (same); September 6 Response (same). In the latter two responses, Franklin stated that the Debtors were acting "in bad faith" and "trying to manipulate the bankruptcy process." September 5 Response at 1-2; September 6 Response at 1-2. None of the responses, however, provided any additional documentation in support of his claim.

On August 27, 2013, the Debtors filed a reply addressing the adequacy of the responses it had received to the Omnibus Objection, including Franklin's July 18 Response. See Bankr. Dkt. 4842 ("Omnibus Reply"). The Omnibus Reply stated that Franklin "fails to provide sufficient documentation in support of [his] claim or any other explanation as to why [his] claim is valid"; accordingly, his claim "should be disallowed and expunged." Id. ¶ 9; see also Omnibus Reply Ex. 1 at 5 ("The Response states that the Claimant is owed money by the debtor, ' has a legitimate creditor claim, ' and has suffered extreme hardship, ' such that disallowing the claim would be unfair.' No supporting documentation is provided.").

On September 11, 2013, a hearing was held before the bankruptcy court on, inter alia, the Omnibus Objection. See Bankr. Dkt. 5164 (Transcript of September 11, 2013 Hearing ("Tr.")). At the hearing, the bankruptcy court inquired as to whether Franklin or a representative on his behalf was present. No one so indicated. The ...

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