Gentry v. Siegel, No. 10-2418

Decided Feb. 2, 2012

Former employees of Circuit City, both named and unnamed claimants, filed proof of claims against the company in bankruptcy court, alleging that they were entitled to roughly $150 million in unpaid wages and overtime. The claimants attempted to utilize Bankruptcy Procedure 9014 that makes FRCP 23 Class Actions applicable to bankruptcy claims. The bankruptcy court ruled “(1) that the Named Claimants were not authorized to file class proofs of claim; (2) that the Rule 9014 motion was untimely filed, having been filed more than a year after the bankruptcy court had closed the time period for filing proofs of claim; (3) that, in any event, the bankruptcy process would be superior to the class action process for handling the claims of the unnamed claimants; and (4) that, in response to the Named Claimants’ challenge to the bankruptcy notice given, the unnamed claimants had received constitutionally adequate notice of the bankruptcy proceedings and of the time period within which to file proofs of claim.” This ruling was affirmed by the district court along with a finding that the named claimants did not have standing to challenge the bankruptcy court’s dismissal of the unnamed claimants.

The Fourth Circuit affirmed. The court did depart with the bankruptcy trustee’s interpretation of class proof claims, calling it too strict and holding that bankruptcy laws should be interpreted and applied in a manner sufficient to allow creditors to make legitimate claims against debtors—including allowing Rule 23 class certification when appropriate. However, no unnamed claimants attempted to file individual claims after the rejection of the class certification. The court also affirmed that the named claimants did not have standing to challenge the rejection of the claims by the unnamed claimants and that the notice to them was not constitutionally deficient. Finally, the court ruled that the bankruptcy court’s decision that a standard bankruptcy procedure was preferable to a class action process in this case was not an abuse of the lower court’s discretion.

Full Opinion

-C. Alexander Cable

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