from the United States District Court for the Southern
District of Texas
JONES, BARKSDALE, and COSTA, Circuit Judges.
H. JONES, CIRCUIT JUDGE.
the third appeal arising out of an architectural copyright
infringement action and subsequent Chapter 7 bankruptcies of
two related companies in the homebuilding business. After
Kipp Flores Architects ("KFA") sued Hallmark
Collection of Homes, L.L.C., for copyright infringement,
Hallmark Collection commenced a "no asset"
bankruptcy case. KFA filed a bankruptcy proof of claim for
copyright infringement damages. Relying on its "deemed
allowed" claim, 11 U.S.C. § 502(a), as a final
judgment, KFA sued appellee Mid-Continent Casualty Company,
the debtor's liability insurer. KFA argues that the
unobjected-to claim constitutes a final judgment and is res
judicata as to Mid-Continent. The question on appeal is what
"deemed allowed" means when a proof of claim is
filed in a no-asset bankruptcy case, no deadline is set for
objections to claims, and no "party in interest"
objects? We conclude that the text and structure of the
Bankruptcy Code, Rules and Official Forms, and relevant case
law all support affirming the district court's summary
judgment against KFA.
KFA creates and markets proprietary home designs and plans.
In a series of licensing agreements, KFA prepared twenty-one
different architectural designs for Texas-based Hallmark
Collection of Homes, L.L.C. ("Hallmark
Collection"). Hallmark Collection obtained a license to
build one, and only one, house per plan-unless Hallmark
Collection compensated KFA for each additional house built
from that plan. Hallmark Collection, however, built several
hundred houses from the licensed plans without paying KFA.
filed suit in March 2009 for violations of federal copyright
law and actual or statutory damages under 17 U.S.C. §
504. The defendants included Hallmark Collection, the limited
partnership Hallmark Design Homes, L.P. ("Hallmark
Design"), and Joe Partain, an owner of Hallmark
Collection. In the midst of the copyright lawsuit, Hallmark
Collection and Hallmark Design filed separately for Chapter 7
bankruptcy protection in November 2009. Both bankruptcy
filings stated on Form B1 that, "after any exempt
property is excluded and administrative expenses paid, there
will be no funds available for distribution to unsecured
creditors." KFA's copyright suit was stayed pending
the bankruptcy cases on November 23, 2009. 11 U.S.C. §
Collection's schedules disclosed liabilities in excess of
$2.5 million but listed no assets available for distribution
to creditors. KFA was listed as a creditor with an unsecured
nonpriority claim for an unknown amount based on the
copyright suit. In early January 2010, the Chapter 7 Trustee
distributed the following notice to creditors:
It having appeared from the schedules of [Hallmark
Collection] at the time of filing that there was no estate
from which any dividend could be paid to creditors, the
notice to creditors advised that it was unnecessary for any
creditor to file his claim at that time.
It appearing subsequently that there is an estate from which
a dividend to creditors may be paid, creditors must now file
claims in this case in order to share in any distribution
from the estate. CLAIMS MUST BE FILED ON OR BEFORE NINETY
(90) DAYS FROM THE ISSUANCE OF THIS NOTICE.
Claims which are not filed timely as set forth above will not
be allowed, except as otherwise provided by law.
Responding to this notice, KFA timely filed a proof of claim
for $63, 471, 000 against Hallmark Collection. (This amount
was based on the debtor's gross receipts from sales of
the infringing homes.) No deadline was set by the court for
objecting to claims. Unsurprisingly, neither the trustee nor
any other party in interest objected to KFA's proof of
claim. The bankruptcy court entered no order allowing or
disallowing the claim. But in August 2010, the Chapter 7
Trustee submitted a No Asset Report, stating that there were
no proceeds from the Hallmark Collection estate for
distribution to creditors. The bankruptcy court closed the
case five weeks later.
Hallmark Collection's case was pending, KFA amended its
complaint in the copyright lawsuit and added individual
defendants Laura Partain and William Graper, each of whom
filed Chapter 7 bankruptcy cases. KFA persuaded the district
court in August 2011 to withdraw the reference to the
bankruptcy court of claims against Hallmark Design, Joe
Partain, and Laura Partain in the underlying copyright suit.
See 28 U.S.C. § 157(d). KFA never made a
similar request with respect to the claim against Hallmark
November 2011, KFA amended its proof of claim in the Hallmark
Design bankruptcy case, seeking over $83 million, and filed
an identical claim in the Partain case. The respective
Chapter 7 Trustees' objections to KFA's claims were
consolidated with the underlying copyright action. After the
district court lifted the automatic stay, KFA prevailed in a
jury trial of the copyright suit that yielded a finding of
$3, 231, 084.00 damages against Hallmark Design but imposed
no liability on the individual defendants. KFA was granted an
"allowed unsecured claim" for $3, 239, 688.40 in
the Hallmark Design bankruptcy. Hallmark Design appealed, and
the Fifth Circuit affirmed.
Mid-Continent, Hallmark Design's insurer, had been
approved to represent the trustee in KFA's litigation.
The insurer next filed a declaratory judgment action in
January 2013 to challenge its policy coverage of the judgment
against Hallmark Design. KFA counter-claimed and prevailed in
the district court. The Fifth Circuit affirmed that
judgment, and Mid-Continent paid KFA $3, 031,
litigation over the Hallmark Design judgment was pending, KFA
made demand on Mid-Continent to pay off KFA's "final
judgment" obtained for its proof of claim in the
Hallmark Collection bankruptcy. KFA sought payment of the
Mid-Continent policies' $6 million face value.
Mid-Continent refused to pay, KFA filed this action in
September 2014 for breach of contract as a judgment creditor
of Hallmark Collection and third-party beneficiary under
Mid-Continent's policies. The district court referred the
matter for pretrial management, pursuant to 28 U.S.C. §
636(b)(1)(A) and (B), to a magistrate judge. Following
protracted proceedings, the parties filed cross-motions for
precedent from multiple bankruptcy courts around the country,
the magistrate judge concluded that "KFA's proof of
claim was not 'deemed allowed, ' as a matter of
law." In part, the magistrate judge reasoned that in
cases where there are no assets available for distribution to
creditors, the bankruptcy claims allowance process "was
never 'triggered' at all." After reviewing
KFA's objections to the magistrate judge's
recommendation, the district court adopted it with one
modification that is irrelevant here. KFA appealed.
standard of review for a district court's grant of
summary judgment is de novo, Sossamon v. Lone Star State
of Tex., 560 F.3d 316, 326 (5th Cir. 2009), applying the
usual standards under Federal Rule of Civil Procedure 56.