‘Deemed Allowed’ Claims Can Be Binding in Subsequent Litigation, Circuit Says

The validity and amount of a “deemed allowed” claim under Section 502(a) can be binding in a subsequent litigation between the same parties or their privies, according to the Sixth Circuit. Before applying issue preclusion or claim preclusion, however, courts should consider whether the claim was actually or necessarily litigated. The case involved a trucking company that terminated a union contract and withdrew from a union pension fund. The pension fund sued to recover about $1.1 million, representing the trucking company’s withdrawal liability. The trucking company filed a chapter 7 petition, and the pension fund filed a claim for exactly same amount it sought in the pre-petition lawsuit, which had been stayed by bankruptcy. No one objected to the claim, so it was deemed allowed under Section 502(a). Section 502(a) says that a proof of claim filed under Section 501 “is deemed allowed, unless a party in interest . . . objects.” Eventually, the pension fund received a $52,000 distribution from the trustee on its deemed allowed claim of $1.1 million. Around the time of the bankruptcy filing, the family that owned the bankrupt trucking company set up a new corporation and began the same business with many of the same customers. The pension fund mounted a suit in federal court against the new company, asserting it was an alter ego under the National Labor Relations Act, making it liable for the bankrupt’s withdrawal liability. The district court granted the pension fund’s motion for summary judgment, holding that the new company was the bankrupt’s alter ego. With regard to damages, the district court added interest and fees allowed under the NLRA, raising the judgment to some $3.2 million. The “new” company appealed, contending that res judicata precluded the district court from awarding more than $1.1 million

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