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In re Chiro Plus

March 3, 2006

IN RE CHIRO PLUS, INC., ET AL., DEBTORS,
RICARDO DEROSA AND JOANN DEROSA, APPELLANTS,
v.
CHIRO PLUS, INC., DEBTOR, AND JOSEPH NEWMAN, CHAPTER 7 TRUSTEE, APPELLEE.



The opinion of the court was delivered by: Bassler, Senior District Judge

FOR PUBLICATION

MEMORANDUM OPINION

Before the Court is an appeal by Ricardo DeRosa and JoAnn DeRosa ("Appellants") of an order by the Bankruptcy Court expunging their claims.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 158(a), which provides for appellate jurisdiction in the district courts from "final judgments, orders, and decrees. . . of bankruptcy judges." Venue is proper under 28 U.S.C. §§ 1408 and 1409. A district court reviews a bankruptcy court's findings of fact under a "clearly erroneous" standard. Fed. R. Bank. P. 8013; IRS v. Pransky, 318 F.3d 536, 542 (3d Cir. 2003); Henthorn v. GMAC Mortgage Corp., 299 B.R. 351, 354 (E.D.Pa. 2003). It exercises de novo review over conclusions of law. Pransky, 318 F.3d at 542; Henthorn, 299 B.R. at 354.

For the reasons set forth below, the Court affirms the decision of the Bankruptcy Court.

I. Background

On March 16, 2001, Chiro Plus, Inc. ("Chiro") filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Pursuant to an order of the United States Bankruptcy Court, Chiro's case was converted to a case under Chapter 7 of the Bankruptcy Code. On September 17, 2001, Joseph Newman was appointed as Trustee ("the Trustee") by the Office of the United States Trustee to serve as Chapter 7 Trustee in Chiro's case. The United States Bankruptcy Court eventually consolidated other defendants*fn1 and their estates and entered a judgment extending Chiro's case over those defendants ("the Consolidated Debtors" or "the Debtors").

The Trustee, during the course of the bankruptcy case, liquidated all of the Consolidated Debtors' assets for distribution to creditors. The Trustee reviewed the proofs of claim on file with the Bankruptcy Court to determine whether the claims were valid. The Trustee filed a motion for an order expunging or reclassifying certain claims, including those of Appellants.

Appellants were hired by MedSource Management, one of the Consolidated Debtors, and Chiro under a verbal agreement to process and collect bills for chiropractic and medical services provided by some of the Consolidated Debtors. According to Appellants, Chiro terminated the relationship in September of 1999 with outstanding receivables owed to Appellants. The verbal agreement stipulated that Appellants were to be paid for processing and collecting bills only if and when those bills were paid.

Once Chiro and the Consolidated Debtors entered into bankruptcy proceedings, Appellants filed proofs of claim. The Trustee filed objections to Appellants' claims on the grounds that (1) the bills relating to Appellants' claims were not paid because the insurance carriers determined that the bills were fraudulent, (2) the Trustee was unable to determine how Appellants claims were calculated, and (3) the claims did not identify the billings upon which Appellants' claims were based. (Appellee's Br. at 4.) Appellants filed an opposition to the Trustee's objection. Both the Trustee and Appellants subsequently filed a supplemental pleadings.

On April 6, 2005, having held a hearing, Chief Judge Gambardella, of the United States Bankruptcy Court for the District of New Jersey, ordered that based on the parties' objections, responses, and supplemental responses, that Appellants' claims be expunged.

Appellants request that this Court reverse the Bankruptcy Court's decision because it (1) erroneously allocated the burdens of proof and (2) it failed to recognize the Trustee's admissions as establishing Appellants' entitlement to the claim under the prevention doctrine.

II. Discussion

A. Burden of ...


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