FDIC v . Pearson, et a l . CV-99-391-M 03/17/00 UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Federal Deposit Insurance Corporation, Appellant

v. Civil N o . 99-391-M Opinion N o .

John E . Pearson, Debtor; and Victor W . Dahar, Trustee,

O R D E R

The Federal Deposit Insurance Corporation (“FDIC”), as

receiver and liquidating agent for several failed New Hampshire

banks, appeals from the bankruptcy court’s entry of summary

judgment in favor of the trustee with respect to the FDIC’s

claims against the estate numbered 2 9 , 3 0 , 3 1 , 3 2 , 3 3 , 34 and 3 5 .

For the reasons given below, the order granting summary judgment

is reversed and the case remanded for further proceedings.

Discussion

The FDIC filed timely proofs of claims against the bankrupt

debtor under

(a). Each claim (numbered 29 through 35) was in writing, made demand on the debtor’s estate, and

expressed an intent to hold the debtor liable for the specified

debt. With one exception, attached to each claim was a copy of

an executed note1 evidencing money previously lent by a failed

bank to borrowers with whom the debtor had been associated

(debtor himself signed some of those notes in an official

capacity); a personal guarantee of repayment signed by the

debtor; and a claim that the debt was not repaid. “[A] claim

that alleges facts sufficient to support a legal liability to the

claimant satisfies the claimant’s initial obligation to go

forward.” In re Pan v . Braunsteen, Trustee,

(D.Mass., 1997) (quoting In re Allegheny Intern., Inc.,

, 173 (3rd Cir. 1992)). The claims made by the FDIC met the

applicable standard and satisfied the FDIC’s initial obligation.

Under section 502(a), a proof of claim is deemed allowed

unless a party in interest objects. Id. In this case, the

debtor objected to each claim. (The trustee was later

1 Only an incomplete copy of the note underlying claim 30 was attached; no signatures are shown.

2 substituted as the real party in interest, and for ease of

reference, the terms debtor and trustee are used

interchangeably.)

In general, debtor’s objections went to the amounts due

rather than the fact of liability (though he did object to

liability as to some claims). Debtor objected to claim 29 on

grounds that conditions precedent to enforcement of his guarantee

were not met (foreclosure on collateral); that the FDIC

improperly released the collateral (prejudicing his rights); and

that the FDIC failed to credit to the alleged debt a substantial

sum realized upon sale of some of the collateral. As to claim

3 0 , debtor asserted that the debt had been “written off” (but not

necessarily forgiven) and that co-guarantors might have made

payments on the debt that were not credited. With regard to

claim 31 debtor asserted that the FDIC could have recovered (and

credited) more if the sale of collateral had been conducted in a

reasonable fashion. As to claim 3 2 , debtor again asserted that

several post-petition sales of collateral generated some funds

that were not credited to the alleged debt. With regard to claim

3 3 3 , debtor, “on information and belief,” asserted that co-

guarantors had satisfied the debt in full (and, in any event, it

had been “written off”). As to claim 3 4 , debtor asserted that

proceeds from a foreclosure sale were not credited to the debt,

and he was fraudently induced by a third-party to obtain the

loans at issue. Finally, as to claim 3 5 , the debtor complained

that the FDIC released a mortgage on the collateral and did not

credit funds obtained from two post-petition sales of collateral.

The bankruptcy court determined that the debtor’s objections

constituted “substantial evidence” sufficient to overcome, as to

all the FDIC’s claims, the prima facie validity usually accorded

a proof of claim. While conclusions of law, such as the legal

sufficiency of a proof of claim, are reviewed de novo, In re Pan,

(citing In re Circle J Dairy, Inc.,

(W.D.Ark., 1989)), for purposes of resolving this appeal, and

for argument’s sake, the court will assume without deciding that

the debtor’s objections did constitute “substantial evidence”

sufficient to overcome the prima facie validity of each of the

seven claims. (Of course, one might be hard pressed to so find

4 with respect t o , at the least, claims 3 0 , 3 3 , and 3 4 , since

debtor’s generalized objections do not provide specific evidence

challenging either liability or amount in any substantive way.

But, upon remand the bankruptcy court would, of course, be free

to reconsider the question on a claim by claim basis.)

If a debtor offers substantial evidence to support his

objection to a claim, the claimant, here the FDIC, is required to

come forward with evidence to prove the validity of the claim by

a preponderance of the evidence. See In re Hemingway Transport,

Inc.,

(1st Cir. 1993); In re Harrison,

(10th Cir. 1993). S o , in the face of a supported objection,

the claimant must shoulder the burden of proving both liability

and amount by a preponderance of the evidence. One of the

bankruptcy court’s tasks in that circumstance is to determine

from the evidence whether the claim has been proved and, if s o ,

the amount that should be allowed.

The FDIC was not afforded an opportunity to prove the

validity of its claims, however, because the debtor filed a

successful motion for summary judgment. In granting summary

5 judgment before trial, the bankruptcy court explained that while

“at most” it could “conclude that the F.D.I.C. may be owed some

amount less than the face amount of the notes,” because the FDIC

failed to adequately rebut the debtor’s affidavit and evidence in

support of summary judgment, failed to offer evidence of its own,

and conceded that the underlying account records of the failed

banks had been lost or misplaced, there was no genuine issue for

trial.

The FDIC made a proffer at the hearing on summary judgment

to the effect that its employees or agents who prepared the

proofs of claim would testify that they reviewed the underlying

bank records before they were lost and prepared extracts or

summaries from those records, in connection with their official

responsibilities on behalf of the receiver. Those summaries, in

turn, were apparently used to prepare the proofs of claims. The

FDIC also agreed that some amounts realized upon liquidation of

collateral should be credited to some of the claims, and that

claim 2 9 , in particular, had to be amended. S o , while the FDIC

conceded that the amount stated in some of its proofs of claim

6 might need to be amended, it never conceded that debtor had

satisfied those obligations, or that they had been forgiven, or

that they could not be proven.

Nevertheless, the bankruptcy court decided that it “would

not wait for trial for the F.D.I.C.’s proffered testimony of its

claim preparer’s recollection of the content of underlying

records purportedly used to create the summaries.” Order at 7 ,

document 451. That decision seems to have been based on the

bankruptcy court’s view that the FDIC had not effectively

responded to debtor’s motion for summary judgment, and, in any

event, could not prove its claims at trial because the notes and

guarantees attached to its proofs would be inadmissible, due to

the FDIC’s inability to lay a proper evidentiary foundation.

And, it seems that the bankruptcy court was also of the view that

no other evidence tending to establish the claims existed or

could be admitted at trial. That conclusion was in error o r , at

the very least, premature.

To be sure, the FDIC’s objection to debtor’s motion for

summary judgment was not of good quality. The FDIC did not, for

7 example, respond with affidavits or exhibits tending to establish

genuine disputes as to material facts, but settled for counsels’

mere proffers of what they hoped to show someday, somehow. If

failure to object at all, or failure to adequately object,

provided grounds for granting a moving party’s summary judgment

motion, then summary judgment might be supportable here. But it

is not. Instead, the movant (here, the debtor) must first

demonstrate both the absence of genuinely disputed material facts

and entitlement to judgment as a matter of law.

Motions for summary judgment in bankruptcy proceedings are

governed by Federal Rule of Civil Procedure 56(c). Fed. R. Bank.

Proc. 7056. Summary judgment shall be granted “if the pleadings,

depositions, answers to interrogatories, and admissions on file

together with affidavits, if any, show that there is no genuine

issue as to any material fact and that the moving party is

entitled to a judgment as a matter of law.” Fed. R. Civ. P.

56(c). The moving party of course bears the burden of

establishing that he is entitled to judgment as a matter of law.

See Celotex Corp. v . Catrett,

(1986).

8 The difficulty in this case is that the debtor did not

establish either the absence of a genuine dispute as to material

facts or that he was entitled to judgment as a matter of law. He

raised a number of objections, some specific but most general,

and, assuming for argument’s sake that those objections could

legally serve to overcome the prima facie validity of each of the

FDIC’s discrete claims, the effect of the debtor’s objection was

simply to put the burden on the FDIC to prove its claims by a

preponderance of evidence.

Debtor moved for summary judgment on the following grounds:

1 ) his supported objections stripped the FDIC’s proofs of claims

of their prima facie evidentiary quality; 2 ) the burden of

proving those claims by a preponderance then fell on the FDIC;

and, 3 ) the FDIC “has no personal knowledge or documentation of

how the claim amounts were calculated or what legal set offs and

payments were made or are due each claim” so “the FDIC is unable

to substantiate the validity and accuracy of the claims as

required by the Bankruptcy Code and applicable law and must be

9 dismissed.”2 Debtor’s Motion for Summary Judgment, document n o .

433, at 4 . The motion was supported by debtor’s affidavit and

various exhibits.

As mentioned earlier, the FDIC’s objection was not

particularly well supported, and certainly not as well supported

as the record (including the FDIC’s proffers) suggests it could

have been. To be sure, under Fed. R. Civ. P. 56(e), “the adverse

party’s response, by affidavits or as otherwise provided in this

rule, must set forth specific facts showing that there is a

genuine issue for trial.” But, it is also “well-settled” that

2 The bankruptcy court treated the FDIC’s seven claims in a categorical fashion, but they are actually discrete and quite distinct claims. The debtor’s objections to one claim did not necessarily apply to other or all claims. Claim 2 9 , for example, may well prove legally insufficient as a matter of law if the facts are undisputed and the bankruptcy court adopts debtor’s construction of the terms of his specific guarantee (a construction the FDIC opposes). That objection, however, has no bearing on the validity of the other six proofs of claim. The bankruptcy court did not construe the pertinent language of the guarantee giving rise to claim 2 9 , so it is not clear that debtor’s interpretation is correct o r , if correct, the facts would support a finding of no legal liability. Since there are no claim by claim dispositions to review, the FDIC’s claims are also being considered in a somewhat categorical fashion on appeal, though that is not the preferred approach.

10 “this does not mean that a moving party is automatically entitled

to summary judgment if the opposing party does not respond” or

responds inadequately:

. . . it is clear that “[w]here the evidentiary matter in support of the motion does not establish the absence of a genuine issue, summary judgment must be denied even if no opposing evidentiary matter is presented.” Stepanischen v . Merchants Despatch Transportation Corp.,

(1st Cir. 1983) (quoting Thornton v . Evans,

(7th Cir. 1982)). Accordingly, the [. . . ] court cannot grant a motion for summary judgment merely for lack of any response by the opposing party, since the [. . . ] court must review the motion and the supporting papers to determine whether they establish the absence of a genuine issue of material fact.

Jaroma v . Massey,

7 , 20 (1st Cir. 1989).

Review of the bankruptcy court’s grant of summary judgment

is de novo. In re Varrasso,

(1st Cir. 1994); In re

BWL, Inc.,

(D.Me. 1991). Applying that standard and

redetermining the issues, I necessarily conclude that the debtor

did not meet his burden of establishing the absence of any

material factual issue, or that he was entitled to judgment as a

matter of law.

11 The record discloses the following. Substantial sums of

money were loaned by three different banks to entities in which

debtor had an interest. Promissory notes were signed by those

entities, sometimes by debtor himself in an official capacity.

Debtor signed a personal guarantee relative to each sum loaned.

Debtor did not present evidence establishing that, as a matter of

law, each debt he guaranteed to pay had in fact been paid, or

that his guarantees had been released, or were legally

unenforceable. He merely showed that defenses might exist as to

liability on some claims, and as to amounts due on others.

Neither did he establish by evidence and as a matter of law,

precisely what amount was due on a particular claim, or that no

amount was due.

For example, with regard to claim 2 9 , debtor raised legal

defenses that might be dispositive, but are not necessarily s o ,

and the bankruptcy court did not rule on those defenses. As to

claim 3 3 , he asserted that the debt had been fully paid by co-

guarantors, but his assertion was merely “upon information and

belief” and relied on ambiguous hearsay (a letter from co-

12 guarantor’s counsel that may not relate to the entire debt) and

an unclear business record (an inconsistent BONHAM log entry).

With regard to the other FDIC claims, debtor essentially did

little more than raise issues as to the correct amounts due under

his guarantee, but did not establish his entitlement to a

judgment holding him either free from liability or liable for

only a specific lesser amount.

The debtor may well have defenses, even complete defenses,

to some or all of the FDIC’s claims, but he did not establish a

clear right to judgment as a matter of law, and he did not

establish the absence of genuine and material factual disputes.

Rather, debtor’s motion and affidavit actually posit a number of

material factual disputes, such a s : whether and to what extent

collateral was sold pertinent to each claim; whether proper

credit was given; and whether the debts underlying each claim

were paid or forgiven.

Basically, the bankruptcy court jumped the gun a bit in

concluding that the FDIC could not prove its claims at trial and

in granting summary judgment. The FDIC may not be able t o , but

13 it is entitled to try. After all, it might be able to prove the

loans (copies of documents, and witnesses, including debtor (see,

e.g., Fed. R. Evid. 1004)); the debtor’s personal guarantees

(copies of documents, debtor’s testimony); the credits due

(copies of documents, public records, and witnesses including the

debtor); and the amount of outstanding deficiencies (witnesses

who reviewed lost documents and prepared summaries and extracts

and other business records (see, e.g., Fed. R. Evid. 1004)).

But, whether the FDIC can or cannot prove its claims by a

preponderance is not controlling on appeal – the debtor’s failure

to demonstrate his entitlement to judgment as a matter of law on

each claim i s ; he cannot prevail on summary judgment unless he

demonstrates that the undisputed facts warrant the legal

conclusion that he owes nothing on each claim (or, perhaps, owes

an amount certain less than that claimed by the FDIC).

Finally, whether this excessively lengthy dispute is worth

the FDIC’s while, given the comparatively small recovery that

might be had from the small amount to be distributed among large

competing claims (assuming the FDIC will prevail on some of its

14 claims) is not a factor relevant to resolving the issues on

appeal. The debtor and trustee simply did not establish

entitlement to judgment as a matter of law as to each of the

FDIC’s claims, and for that reason the judgment must be set

aside.

15 Conclusion

The order granting summary judgment is reversed and vacated.

The matter is remanded to the bankruptcy court for further

proceedings.

SO ORDERED.

Steven J. McAuliffe United States District Judge

March 1 7 , 2000

cc: Daniel A . Laufer, Esq. Jennifer Rood, Esq. George Vannah, USBC Victor Dahar, Esq., Trustee

16