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The BAP affirmed the court’s order that its sanctions opinion be provided to any potential adversary
clients the lawyer declined in the next two years. It said the court “saw this sanction as a means of
informing the bar that being disciplined for unethical conduct has repercussions beyond just paying a fine
and moving on. We find it difficult to disagree with this reasoning.”

Secured Lender Cannot Use Parol Evidence Against Trustee

A secured lender cannot use parol evidence against a bankruptcy trustee to save a security
agreement from a mistaken description of the debt secured, the Seventh Circuit U.S. Court of Appeals
has held.

Conceding that the error at issue was the kind of mistake that could be corrected, as between the
original parties to the loan, by reformation based on parol evidence, the court said the rule was different
with respect to a bankruptcy trustee. In re Duckworth, 776 F.3d 453 (7th Cir. 2014).
In Duckworth, the security agreement misstated by two days the date of the promissory note secured.
Stressing “the importance of third parties’ ability to rely on unambiguous documents – even if the original
parties can show they contained mistakes – to determine the validity and priority of security interests,” the
court upheld the trustee’s “strong arm” avoidance power, which it characterized as a blunt tool that
encourages lenders to give correct public notice of their security interests by “harshly penalizing those
who fail to do so.”
“We find no limiting principle that would allow the courts or parties to distinguish reliably between
small errors and big ones,” the court said. “[P]arol evidence cannot be used to correct even the seemingly
minor error in the security agreement.”

Claim Filing Deadline Applies To Secured Claims

Noting contrary views in some courts, the Court of Appeals for the Seventh Circuit has held that the
proof-of-claim filing deadline set forth in Federal Rule of Bankruptcy Procedure 3002(c) applies to secured
as well as unsecured claims. In re Pajian, __ F.3d __, 2015 WL 2182951 (7th Cir. 2015).

Rule 3002(c) requires creditors to file proofs of claim within 90 days of the date set for the first
meeting of creditors. Because Rule 3002(a) provides that unsecured creditors and equity security holders
must file proofs of claim, many courts and attorneys had presumed that Rule
3002(c) applied only to the secured creditors also.

The Court of Appeals said it thought the better interpretation was that all
creditors are bound by Rule 3002(c). Noting that the drafters specifically limited
some of Rule 3002’s provisions to unsecured creditors but did not do so in
3002(c), it said “[t]hat they did not specifically mention unsecured claims when
setting forth the 90-day deadline in subsection (c) . . . strongly implies that the
deadline encompasses all claims” unless one of the rules express exceptions is
applicable (court’s emphasis).

– John T. Hundley, John@sharp-hundley.com, 618-242-0200
Brenda\SharpThinking\#129.pdf

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SHARP-HUNDLEY, P.C.

1115 Harrison, P.O. Box 906, Mt. Vernon, IL 62864 • Telephone 618-242-0200 • Facsimile 618-242-1170
www.sharp-hundley.com

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John T. Hundley: John@sharp-hundley.com; Rebecca L. Reinhardt: Rebecca@sharp-hundley.com;
Darren Taylor: Darren@sharp-hundley.com; Terry Sharp: Terry@sharp-hundley.com

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