Getting Off the Omnibus: Fair Notice of Claims Objections

Everyone who has represented a general unsecured creditor in a big chapter 11 case has had this experience. After the proof of claim has been filed, and usually after the plan has been confirmed, you receive in the mail the “Reorganized Debtor’s First Omnibus Objection to Claims.” Attached to the objection is an exhibit listing, in very small type, literally hundreds of claims. The grounds for objection may be something like “required documentation not attached.” Unless a timely response is submitted, all of these claims will be disallowed.

Counsel for unsecured creditors in a large case are subjected to this kind of notice constantly. In one in which I am currently involved, the liquidating trust is up to its 31st omnibus objection. Its bad for clients, but worse for lawyers in some ways. A lawyer who has actually appeared for a client in one of these cases gets electronic service of all the papers. In the case I’m speaking of the 31st Omnibus Objection was docket entry No. 3189.

Lawyers have been let off the hook for missing their client’s claim in the list and failing to file a timely response to an omnibus objection. It took an appeal to the District Court to accomplish this is in In re Inacom Corp., 2004 WL 2283599 (D. Del. 2004). As the opinion describes it: “The Objection contests approximately 412 claims spread over 96 pages of exhibits. The exhibits are lettered A through H, with some exhibits containing multiple alphabetical listings of objections.” This hapless creditor’s name appeared on one of the alphabetical lists included in Exhibit E. The law firm’s mistake in failing to respond to the objection was not discovered until the expected distribution under the confirmed plan was not received.

On April 30, the United States Supreme Court approved changes to Federal Rule of Bankruptcy Procedure 3007. Absent Congressional action, the new rule will take effect on December 1, 2007. The new rule limits the grounds for an omnibus objection. Even where such objections are allowed, the new rule requires that the objection “list claimants alphabetically, provide cross references to claim numbers and, if appropriate, list claimants by category of claims.” The rule also contains an absolute limit of 100 claims which may be joined in an omnibus objection.

The practicalities of the mega case mean that application of the new rule will result in similar claims objections being spread over more omnibus notices, 100 at a time. Even so, the new rule will make things easier on everyone who needs to find a name on one of those lists.