Amended Proofs of Claim are not Always Allowed

Lianna Meehan

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff

            In In re Maxus Energy Corporation, the United States Bankruptcy Court for the District of Delaware held that PSE&G could not file an amended proof of claim years after the bar date had passed on its timely-filed proof of claim.[1] The bankruptcy court held that a motion for leave to amend a proof of claim “should be granted if and only if the original proof of claim seeks amounts beyond” the amount sought in the amended proof of claim.[2]

The original proof of claim at issue was filed against Maxus and its affiliates (the “Debtors”). In the process of making Agent Orange, the Debtors discharged dioxin and other chemicals into the Passaic River, causing environmental damages.[3] The Debtors filed for bankruptcy in 2016 because of the “substantial environmental liabilities” they incurred as a result of these damages.[4] The Lower Passaic River Study Area Cooperating Parties Group (“CPG”), of which PSE&G is a member, filed the original proof of claim against Maxus.[5] The original proof of claim “did not preclude any of its members from separately asserting whatever claims they might have that were independent of the member’s involvement in the CPG.”[6] PSE&G timely filed its own proof of claim a few days after CPG filed the original proof of claim.[7] PSE&G’s claim was for its own independent costs unrelated to the CPG claims asserted in the original proof of claim.[8]

The issue the bankruptcy court focused on was whether PSE&G, as a creditor, could later amend the CPG proof of claim after the Debtors relied on the “claims register to understand the total claims universe . . . ” and after PSE&G’s proof of claim was objected to by the liquidating trustee for the Debtors’ estates.[9] The bankruptcy court found that PSE&G’s orignal, timely-filed proof of claim did “not encompass a claim to recover costs unrelated to PSE&G’s membership in the CPG . . . .”[10] Furthermore, PSE&G’s amended proof of claim did not seek an amount related to CPG’s proof of claim, meaning that the amended proof of claim would not have put debtors fairly on notice that PSE&G sought to recover costs independent of those described in the CPG claim.[11] Thus, the bankruptcy court held that PSE&G’s amended proof of claim sought an amount that was more than what was in the original proof of claim and denied the motion for leave to amend the proof of claim.[12]

In May 2017, the Debtors’ liquidating plan was confirmed.[13] It included a settlement with CPG, whereby CPG received an allowed claim of about $14.4 million.[14] In April 2023, the liquidating trust formed under the plan reached a $570 million settlement with the prior owners of the Debtors, and that money was to be distributed to all of the creditors.[15] After the settlement was approved in May 2023, the liquidating trustee filed an objection to PSE&G’s amended claim, arguing it was duplicative of the CPG claim and that parts of it were subject to disallowance under section 502(e) of title 11 of the United States Code (the “Bankruptcy Code”).[16] In response, PSE&G filed a cross-motion that sought leave to amend the original proof of claim.[17]

The liquidating trustee and PSE&G disagreed over the applicable legal standard for PSE&G’s motion for leave to amend the original proof of claim. PSE&G argued that its motion was governed by Rule 15 of the Federal Rules of Civil Procedure (“Rule 15”) under the “transaction or occurrence” test.[18] Rule 15 provides that a claim can be amended if the new claim is from the same transaction or occurrence as the original claim.[19] The liquidating trustee argued that under Exide Technologies, a showing of “good cause,” or a “compelling reason,” was required to grant a motion for leave to amend a proof of claim filed after a liquidating plan’s effective date.[20]

The bankruptcy court held that once a bar date passes, a proof of claim cannot be amended for recovery of costs that are new or different amounts than were encompassed in the original proof of claim.[21] According to the bankruptcy court, amendments to proofs of claim after a bar date are generally for fleshing out the details in the original proof of claim, not for asserting entirely new claims.[22] PSE&G’s amended claim sought approximately $38.7 million for its own independent costs, unrelated to PSE&G’s membership in the CPG.[23] When answering the question of whether PSE&G could file an amended proof of claim, the bankruptcy court considered whether the original proof of claim should be read to include amounts that are outside the CPG claim. The bankruptcy court found that to grant a motion to amend a proof of claim, “the amounts sought in the amended proof of claim [must be] fairly encompassed by the timely-filed proof of claim.”[24] Here, PSE&G’s amended proof of claim sought an amount that was unrelated to the amount specified in its original proof of claim. Its motion was denied for this reason.

            In sum, in the District of Delaware, a motion for leave to amend a proof of claim will be denied where the amendment seeks to recover a new or different amount than the original proof of claim.