UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
KATHLEEN J. THOMAS CASE NO. 96-20855
MEMORANDUM OPINION AND ORDER
This matter comes before the Court upon the objection by the trustee to the proof of claim filed by Jeffrey S. Rich in this chapter 7 proceeding.
The proof of claim filed by Rich is in the amount of $666,257. The claim was timely filed and is based upon a Consent Judgment entered in the United States District Court for the Eastern District of New York in the original amount of $725,000 plus interest as provided by law. That judgment was entered on or about April 13, 1995. The trustee lists two grounds in objecting to the proof of claim involved.
First, the claim is not supported by any or adequate documentation or proof. The response of Rich in this matter to this objection was to file with the Court a copy of the complaint, answer, stipulation and order, affidavit of Rich=s attorney in the district court action, certification of judgment for registration in another district and an additional copy of the Consent Judgment itself. A review of this response and the attached documentation leads the Court to conclude that, while the documentation was not filed with the original claim, the documentation clearly establishes the basis for an entry of the Consent Judgment by the United States District Court. As such, the Court deems the claim amended to include this additional documentation. The complaint attached to the response recites involved business dealings between the parties in which Rich alleges that he was defrauded by the debtor. The complaint requests actual damages in the amount of $1,009,720 and punitive damages in the amount of $3,000,000. The complaint details what it claims is an involved scheme by the debtor to defraud Rich and actual losses of substantial sums of money. As amended, the claim clearly contains adequate documentation to establish it as a prima facie claim against the estate.
The second basis for the objection is that the judgment upon which the claim is based is a Consent Judgment and was enteredAunder circumstances that are, or ought to be the subject of collateral attack as appears hereafter@. Trustee then proceeds to argue that he is not bound by the prior judgment in his capacity as trustee. This issue appears to be contested by the response of Rich.
Initially, a properly filed claim constitutes prima facie evidence of the claim=s validity and amount, and the burden is on the objector to produce evidence to rebut the presumption. The ultimate burden of proof, once the presumption is rebutted, is on the claimant. In re MacFarlane, 83 F.3rd 1041 (9th Cir. 1996); In re Brown, 82 F.3rd 801 (8th Cir. 1996). An objection to claim does not deprive the proof of claim of its presumptive validity unless the objection is supported by substantial evidence. In re Hemmingway Transport, Incorporated, 993 F.2d 915 (1st Cir. 1993) citing Federal Rule of Bankruptcy Procedure 3001(f).
The trustee contends that he is not bound by collateral estoppel to a Consent Judgment agreed to by the debtor prior to the filing of the bankruptcy proceeding. The trustee appears to be correct in this contention in that it is clear that the debtor and the trustee lack the privity necessary to bind the estate to a pre-petition Consent Judgment entered into by the debtor. Harrison v. Bloomfield Building Industries, Inc., 435 F.2d 1192 (6th Cir. 1970). The absence of privity between the debtor and the trustee does not indicate that collateral estoppel may never bind an estate. For example, privity may exist between a debtor in possession and a subsequent trustee in a chapter 11 case which would bind the trustee to orders and agreements of the debtor in possession. In re Monument Record Corporation, 71 B.R. 853 (Bkrtcy. M.D. Tenn. 1987).
Reviewing the record in this matter, the Court has before it the affidavit of the trustee indicating that at an examination of the debtor pursuant to Federal Rule of Bankruptcy Procedure 2004, the debtor indicated that she and Rich were engaged to be married and that Rich purchased a home for her for a sum in excess of $100,000 but that the engagement was terminated and the house was sold and the proceeds remaining after payment of the mortgage were paid over to Rich. At such examination, the trustee, by his affidavit, indicates that he was not made aware of how the balance of the alleged debt arose nor did he see any documentation or evidence to sustain the debt. There is, however, no evidence in the record concerning any collusion or fraud on the part of the parties involved in the Consent Judgment.
While the suspicions of an experienced trustee may be warranted under the facts of this case, the Court must look for substantial evidence to rebut the presumption of the validity of the claim. In re Hemmingway Transport, Inc., supra. It appears from the verified complaint of the plaintiff in this United States District Court proceeding that substantial sums of money were advanced by the claimant to the debtor. It also appears that these sums were not repaid. This Court concludes that the trustee has been unable to present substantial evidence to rebut the presumptive validity of the proof of claim pursuant to Federal Rule of Bankruptcy Procedure 3001(f). Therefore, IT IS HEREBY
ORDERED that the within objection to the claim of Jeffrey S. Rich be, and the same hereby is, OVERRULED.
Dated this _____ day of April, 1997.
BY THE COURT
Robert E. Bathalter, Esq.
Michael L. Baker, Esq.
James A. Nolan, Esq.