Proof of Claim Disallowed Because of a Lack of Evidentiary Support

By: Madeline Mallo

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

A Delaware bankruptcy court has held that a former officer of a debtor could not recover on his claim for his “Special Pension Arrangement” absent evidence of having worked for the debtor.[1] In In re Nortel, a former President and CEO filed a claim in the amount of $2,278,679 against both a Canadian and United States debtor.[2] The officer entered into a retention agreement, which provided for a “Special Pension Arrangement,” with Nortel Networks Corporation (“NNC”) and Nortel Networks Limited (“NNL”), two Canadian debtors. The officer also entered into a termination agreement with the Canadian debtors and Nortel Networks, Inc. (“NNI”), a United States debtor.[3] The Canadian debtors objected to the officer’s claim, but then represented that they would withdraw their objection if the bankruptcy court disallowed the claim against the United States debtor.[4] The court concluded that upon the Canadian debtors’ withdrawal of their objection to the claim, the court would sustain the objection to the claim against the U.S. debtor.[5]

Under 11 U.S.C. § 502 a proof of claim is deemed allowed, unless a party in interest objects.[6] In general, a proof of claim “shall constitute prima facie evidence of the validity and amount of the claim.”[7] The proof of claim must include facts that sufficiently support the debtor’s legal liability to the creditor.[8] If the debtor objects, the burden shifts to the debtor to provide negating evidence.[9] Then, if the debtor is successful, the burden shifts back to the claimant to prove the validity of the claim.[10]

The In re Nortel decision turned on a lack of evidence. The claimant did not provide the court with an explanation as to why the termination agreement included NNI.[11] The court speculated it was because NNI is the principal U.S. operating subsidiary of the Canadian debtors and the claimant is a U.S. citizen, but this speculation had no evidentiary support.[12] The evidence, including the terms of the retention agreement, reflected that the officer was an employee of NNC and NNL, not of NNI. Further, the debtors also provided a letter which explicitly stated how the claimant was going to receive his pension benefits from Canada.[13] The court determined NNC and NNL employed the claimant, that the claimant worked as President and CEO of NNC and NNL, and that the pension payments came from Canada.[14] The officer, however, did not have a relationship with NNI. Accordingly, the court concluded only the Canadian debtors had obligations to the claimant.[15]

In general, a creditor may only hold a claim against a debtor with which it has a relationship. Consequently, a creditor will not be allowed to hold a claim against two affiliated debtors when there is evidence the claimant only worked for one of the debtors and not the other.

[1] In re Nortel, No. 09-10138(KG), 2017 WL2656520, at *1 (Bankr. D.Del. 2017).

[2] See Id. at 2.

[3] See Id.

[4] See Id. at 1.

[5] See Id. at 4.

[6] 11 U.S.C. § 502.

[7] Fed. R. Bankr. P. § 3001(f).

[8] In re Allegheny, 954 F.2d 167, 173 (3d Cir. 1992).

[9] See Id. at 173.

[10] See Id.

[11] In re Nortel, 2017 WL2656520, at *3

[12] See Id.

[13] See Id.

[14] See Id.

[15] See Id at 4.