DANN S. SHEFTELMAN, ET AL., PETITIONERS V. STANDARD METALS CORP., ET AL. No. 88-243 In the Supreme Court of the United States October Term, 1988 On Petition for a Writ of Certiorari to the United States Court of Appeals for the Tenth Circuit Brief for the Securities and Exchange Commission as Respondent Pursuant to 11 U.S.C. 1109(a), the Securities and Exchange Commission, as a statutory party in Chapter 11 bankruptcy reorganization cases, acts as an advisor to the courts and seeks primarily to protect the interests of public investors. /1/ The Commission appeared in this case in the bankruptcy court, in the district court, and in the court of appeals. The Court has at least twice before treated the Commission as a respondent in these circumstances. Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 419 n.8 (1972); Protective Comm. v. Anderson, 390 U.S. 414, 420 n.3 (1968). The Commission accordingly appears here as respondent. TABLE OF CONTENTS Question Presented Opinions below Jurisdiction Statement Argument Conclusion OPINIONS BELOW The initial opinion of the court of appeals (Pet. App. 1a-18a) is reported at 817 F.2d 625. The opinion of the court of appeals on rehearing (Pet. App. 19a-26a) is reported at 839 F.2d 1383. The order of the court of appeals clarifying its earlier opinions (Pet. App. 27a) is not reported. The order of the district court dismissing the appeal from the bankruptcy court (Pet. App. 29a) is not reported. The opinion of the bankruptcy court (Pet. App. 31a-49a) is reported at 48 Bankr. 778. JURISDICTION The initial judgment of the court of appeals was entered on April 20, 1987. The judgment of the court of appeals on rehearing was entered on December 29, 1987. An order clarifying the ruling was entered on March 28, 1988. A petition for rehearing and suggestion for rehearing en banc were denied on April 8, 1988 (Pet. App. 28a). On June 20, 1988, Justice White granted an extension of time within which to file a petition for a writ of certiorari to and including August 8, 1988. The petition for a writ of certiorari was filed on that day. The jurisdiction of this Court is invoked pursuant to 28 U.S.C. 1254(1). QUESTION PRESENTED The Securities and Exchange Commission will address the question whether the filing of class proofs of claim is permissible in bankruptcy proceedings. STATEMENT 1. In February 1983, the New Jersey Economic Development Authority issued on behalf of National Smelting of New Jersey (NSNJ) approximately 1500 industrial revenue bonds, with a face amount of $5000 each, the proceeds of which were to be used by NSNJ to purchase, renovate, and operate a lead smelting plant (Pet. App. 31a-36a). NSNJ was wholly owned by National Smelting and Refining Co. (NSR), which in turn was half-owned by respondent Standard Metals Corporation (Standard) (ibid.). Petitioner Dann Sheftelman purchased some of the bonds. /2/ He still owned them when a default was declared in January 1984 (id. at 3a). Two months later, Standard, NSNJ, and NSR all filed for reorganization in bankruptcy in the United States Bankruptcy Court for the District of Colorado (id. at 2a). This case involves Standard's reorganization proceeding. In early May 1984, the bankruptcy court in Standard's case set a claims bar date of June 10, 1984, so that claims against the estate had to be filed before that date (Pet. App. 32a-33a). The court also ordered that notice be sent to all of the creditors listed by Standard on its schedules of liabilities (id. at 33a). Neither petitioner nor any of the bondholders was listed on Standard's schedules, /3/ and Standard gave no notice of the claims bar date to them. Nor was notice of the claims bar date published in any form (id. at 23a). On August 8, 1984, petitioner filed a securities-fraud class action in the United States District Court for the District of New Jersey on behalf of the bond purchasers. Although the named defendants did not include Standard (or NSNJ or NSR), /4/ the complaint alleged that Standard, NSNJ, and NSR participated in the wrongful acts by making material misrepresentations regarding the smelting plant and the purposes of the bond issue (Pet. App. 33a). In particular, petitioner alleged that some of the proceeds of the bond issue were used, not for NSNJ's purchase and operation of the smelting plant, but to extinguish Standard's preexisting debt to the seller. Complaint, Sheftelman v. N.L. Indus. Inc., Civ. No. 84-3199 (D.N.J. Aug. 8, 1984). On August 30, 1984, petitioner filed in Standard's reorganization proceeding in the Colorado bankruptcy court a class "proof of claim," individually and on behalf of the class of bondholders, seeking relief from Standard based on the same allegations of securities fraud. Three months later, Standard objected that the claims were not timely and that, in any event, a class proof of claim is not permitted in bankruptcy (Pet. App. 3a, 33a-34a). In response, petitioner made motions requesting that leave be given for him to file out of time, that the claims bar date be extended and notice be given to the bondholders, and that, pursuant to Bankruptcy Rule 9014, the class action procedures of Bankruptcy Rule 7023 (which incorporates Rule 23, Fed. R. Civ. P.) be made applicable to the contested proceedings related to the securities-fraud claim (Pet. App. 34a). /5/ 2. The bankruptcy court denied petitioner's motions (Pet. App. 31a-49a). In addition to dismissing his individual claim, /6/ the court rejected petitioner's effort to file a class proof of claim. After stating that petitioner had not yet satisfied several ordinary prerequisites to a class action (assuming that class claims are ever allowable) (id. at 38a-39a), the court concluded that, even apart from those concerns, petitioner's class claim should not be permitted. First, petitioner failed to meet the requirements of Rule 3001(b), Bankr. R., because he did not show that he had been authorized to act as an agent of the class members (Pet. App. 39a-40a). /7/ Second, petitioner's class claim contravened Section 501 of the Bankruptcy Code, 11 U.S.C. 501, which, in subsection (a), states that "(a) creditor or an indenture trustee may file a proof of claim." The court evidently construed that language to require "that each creditor must file a proof of claim" individually, unless it is filed by an indenture trustee or an agent specifically authorized by the creditor, which did not occur here (Pet. App. 39a-40a). The district court, while affirming other rulings of the bankruptcy court without opinion, did not reach the class-claim issue. Id. at 29a. /8/ 3. a. In the first of two rulings on appeal, the court of appeals affirmed (Pet. App. 1a-18a). The court began by upholding the dismissal of petitioner's individual claim as a discovery sanction (id. at 5a-7a). After concluding that the class-claim issue should nonetheless be reached (id. at 8a-9a), the court held that "class proofs of claim violate the statutory scheme of the (Bankruptcy Reform) Act and the Rules" (id. at 9a). The court observed that, while Section 501 of the Code provides that a creditor may file a proof of claim, Congress had directed that the Bankruptcy Rules would determine when the filing of a proof of claim is necessary (Pet. App. 9a). The court then stated that Rule 3003(c)(2) sets forth a "stringent requirement" that "an unscheduled creditor must file a proof of claim in order for that claim to be allowed" (Pet. App. 9a-10a (emphasis in original; footnote omitted)). /9/ The court said that the Code and Rules do not "expressly permit or expressly prohibit" class proofs of claim (id. at 10a). But it read (ibid.) Rule 3001(b), which states that "(a) proof of claim shall be executed by the creditor or the creditor's authorized agent," to require "that each individual claimant must file a proof of claim or expressly authorize an agent to act on his or her behalf." Even a representative of a class that has been certified, the court continued (Pet. App. 11a), does not have the express authorization from each individual creditor that the court found was required to be an "authorized agent." The court distinguished between "the permissibility of class proofs of claim and the availability of class action procedures to a group of individually filed proofs of claim" (Pet. App. 11a n.10), concluding that Bankruptcy Rules 7023 and 9014 apply only to the latter. The court acknowledged that "class action procedures can be appropriate in some instances where a large number of individual creditors have filed similar claims" (Pet. App. 12a). But it stated that class action procedures cannot be used to "evade" the "requirement of individual filing" (ibid.). The court bolstered its conclusion in two additional ways. First, it stated (Pet. App. 12a) that "class proofs of claims are unnecessary in a bankruptcy proceeding," because the historical purpose of class actions is "to avoid a multiplicity of suits in a variety of forums," and that purpose is automatically served in bankruptcy proceedings, which concentrate litigation against the estate in one forum, without resort to the class device. Second, the court pointed (id. at 13a) to the weight of authority against such a practice. It noted that the handful of published decisions on the issue (all by bankruptcy courts) had uniformly rejected class proofs of claim and that, of the three contrary unpublished decisions called to its attention, only one remained standing that allowed a class proof of claim over the objection of the debtor. /10/ The court concluded its initial opinion by determining, in view of its resolution of the other issues in the case, that it need not decide whether the bondholders were entitled to notice of the claims bar date (Pet. App. 13a). It therefore affirmed the judgment of the district court. Judge Seth dissented from the court's affirmance (id. at 14a-18a), stating that the court should have reached the notice issue and reversed on that ground. b. After its initial ruling, the court granted a petition for rehearing on the notice question and reversed the district court and bankruptcy court on that issue. It held that notice must be given to the bondholders once their claims were brought to the attention of the bankruptcy court and that a new claims bar date should have been set (Pet. App. 19a-26a). While reaffirming the dismissal of petitioner's individual claim (id. at 26a), the court stated that it was no longer "necessary to consider the class action claims issues" (ibid.). By order dated March 28, 1988, however, the court responded to requests for clarification of the status of its initial ruling on the class-claim issue by declaring that the original panel opinion was not vacated as to that issue (id. at 27a). Accordingly, the ruling that class proofs of claim are not permitted in bankruptcy stands as part of the holding in the case. ARGUMENT The court of appeals' decision holding class proofs of claim impermissible in bankruptcy proceedings conflicts with the Seventh Circuit's recent decision in In re American Reserve Corp., 840 F.2d 487 (1988). The court of appeals' rejection of class proofs of claim is also incorrect. Nevertheless, we believe that the Court should not grant certiorari in this case on the class-claim question. /11/ 1. There is a direct conflict between the decision of the Tenth Circuit in this case and the decision of the Seventh Circuit in American Reserve, which was rendered after the decision on rehearing in this case. /12/ American Reserve held that class proofs of claim are permissible because they are authorized by the Bankruptcy Rules and are not prohibited by the Code. At the outset, the court found that class proofs of claim were expressly authorized by Rule 9014, because that rule allows bankruptcy courts to apply Rule 7023 -- which in turn makes applicable Fed. R. Civ. P. 23 -- at "any stage" in contested matters. The filing of a proof of claim that is contested is one such stage (840 F.2d at 488). Rule 9014's express authorization of class proofs of claim, the court then explained, was not overridden by statute or relevant policy arguments. The court acknowledged that permitting class proofs of claim in bankruptcy may not be necessary in order to serve the main procedural policy underlying class actions -- to consolidate related litigation in one forum (840 F.2d at 489). The court observed, however, that the important substantive policy behind class actions -- to allow the pursuit of many small claims that otherwise would lie dormant -- is served by allowing class proofs of claim in bankruptcy (ibid.). Under bankruptcy law, small claimants have no less right to recover, according to their entitlements under substantive law, than larger claimants; and, whether out of ignorance of their claims or as a result of the prohibitive costs of investigating and pursuing a claim, the class device is all that enables many small claimants to do so (ibid.). Further, permitting the pursuit of valid class claims raises the level of deterrence of wrongful conduct (id. at 489-491). Not surprisingly in light of those policies, the court pointed out (id. at 490), "(t)here is nothing unusual about representative litigation in bankruptcy cases," as some of the earliest class suits were the creditors' bills that preceded the enactment of the 1898 Bankruptcy Act. Hence, the court concluded (id. at 492), class-action policies offer no ground for depriving Rule 9014 of its ordinary meaning. Indeed, "(o)ur benchmark -- that bankruptcy courts exist to marshal assets and make awards justified by non-bankruptcy entitlements -- calls for employing the class device in such cases" (840 F.2d at 492). The court then explained that Section 501 of the Code, on which the Tenth Circuit in this case had partly relied, does not override Rule 9014's authorization of class proofs of claim. The court followed (840 F.2d at 492) this Court's decision in Califano v. Yamasaki, 442 U.S. 682 (1979), which held that a statute allowing suit by an "individual" did not provide the required "direct expression by Congress of its intent to depart from the usual course" of allowing class actions under Fed. R. Civ. P. 23 (442 U.S. at 700). The Seventh Circuit observed (840 F.2d at 492) that Section 501 established no such intent in the bankruptcy context. Thus, the court explained (840 F.2d at 492) that Section 501 identifies several "representatives" who may file claims for creditors -- an indenture trustee, the bankrupt's co-debtor or guarantor, and the bankrupt itself -- but gives no indication that that list is exclusive. Neither the legislative history nor the structure of the Code suggests that no other representative filings are permitted, the court added (ibid.), and the filing of representative claims other than those listed in Section 501 was plainly intended in at least some instances (840 F.2d at 493). In particular, Rule 3001(b), and not Section 501, provides for "the most common representative filing of all: by an agent on behalf of the principal" (840 F.2d at 493). In short, "Section 501 does not interfere with filing by agents. The representative in a class action is an agent for the missing" (ibid.) 2. The court of appeals' contrary ruling in this case is incorrect. As we have argued in this case below, in American Reserve, and in other cases, for much the same reasons as were given by the Seventh Circuit, class proofs of claim are permissible in bankruptcy proceedings under the Code and Rules. a. The court of appeals did not rule that the Bankruptcy Code, independently of the Rules, precluded recognition of class proofs of claim, but it stated that "class proofs of claim violate the statutory scheme of the (Code) and Rules" (Pet. App. 9a). The only provision of the Code it relied on, however, is Section 501(a). That section simply does not answer the question whether class proofs of claim are permitted. Califano v. Yamasaki, supra, provides the proper framework. This Court there considered whether Section 205(g) of the Social Security Act, 42 U.S.C. 405(g), which states that "(a)ny individual" may obtain review of certain administrative decisions to which he was a party, permits the filing of a class action. Although it was not disputed that, in the absence of that provision, Rule 23, Fed. R. Civ. P., would apply, the government argued that the language of the statutory provision showed that "Congress contemplated a case-by-case adjudication of claims under Section 205(g) that is incompatible with class relief" (442 U.S. at 699). The Court rejected the argument, concluding (id. at 700) that it could not find "the necessary clear expression of congressional intent to exempt actions brought under (Section 205(g)) from the operation of the Federal Rules of Civil Procedure." Citing numerous similar statutes that use singular terms but had never been thought to preclude class actions, the Court ruled (id. at 700-701) that the statute's use of the word "individual" was no indication that class actions were precluded. The Court also explained (id. at 701) that class action procedures themselves fully accommodate any need for individualized adjudication and that the class device was peculiarly appropriate where, as in Yamasaki, it makes possible the efficient litigation of common legal issues applicable to numerous small claimants. The Yamasaki analysis fully applies here. Nothing in Section 501 suggests that otherwise-authorized class proofs of claim are impermissible. Section 501(a)'s statement that "a creditor" (or an indenture trustee) may file a proof of claim no more indicates a preclusion of class claims than did the use of "individual" in the statute at issue in Yamasaki. And nothing in the legislative history discloses an intention on the part of Congress that class proofs of claim be forbidden; there is no discussion of the subject. See S. Rep. 95-989, 95th Cong., 2d Sess. 61 (1978); H.R. Rep. 95-595, 95th Cong., 1st Sess. 351-352 (1977); 124 Cong. Rec. 32396 (1978) (joint explanatory statement); id. at 33996 (1978) (explanatory statement). Indeed, as the court of appeals recognized (Pet. App. 9a), Congress did not intend the Code to establish when a particular creditor must file a proof of claim, but rather left that task to the Bankruptcy Rules. See S. Rep. 95-989, supra, at 61; H.R. Rep. 95-595, supra, at 351. /13/ Further, there is no reason to infer an intent to preclude a "creditor" from filing a proof of claim as a representative of a class from the fact that Section 501 expressly authorizes proofs of claim to be filed on creditors' behalf in certain circumstances by indenture trustees, the bankrupt's co-debtors and guarantors, bankrupts themselves, and trustees in bankruptcy. As the Seventh Circuit pointed out in American Reserve (840 F.2d at 493), reading Section 501 as furnishing an exhaustive list of representatives of creditors would exclude the most common type of representative of all -- the creditor's agent. Moreover, as noted, Congress simply was not addressing either the class-claim issue in particular or the general question of how and when proofs of claim must be filed in general. And in any event, the categories of persons enumerated, unlike class plaintiffs, are not such familiar representatives of others' claims that, without separate mention, they could naturally be covered by the term "creditor," as a class representative would. In short, Section 501 does not preclude a bankruptcy court from adopting class-action procedures to permit a named claimant to file a proof of claim as the representative of a class of claimants against the debtor, so that those claimants may litigate and, if warranted, recover against the debtor without the need for individual proofs of claim. /14/ Hence, the Code would not invalidate any Bankruptcy Rule that authorized class proofs of claim where, for example, the ordinary requirements for class actions are met. /15/ b. The Bankruptcy Rules, though not expressly stating that "class proofs of claim may be filed," do authorize class proofs of claim. That authorization is furnished by Rule 7023 for those claims which create "adversary proceedings" within the meaning of Rule 7001. For other claims, which create "contested matters" when disputed, the authorization is provided by Rule 9014. Rule 7023 states that "Rule 23 F.R. Civ. P. applies in adversary proceedings." Because Fed. R. Civ. P. 23 authorizes the initiation of a single action on behalf of a class (and not just the consolidation of numerous individually filed complaints), Rule 7023 of the Bankruptcy Rules likewise authorizes a class representative to initiate an adversary proceeding, as defined in Rule 7001, /16/ on behalf of a class. Rule 7023, which simply adopts Rule 23, Fed. R. Civ. P., cannot reasonably be read -- as the court of appeals read it (Pet. App. 11a n.10) -- merely to authorize the joinder of numerous individually filed claims, because Rule 23 in its post-1966 form clearly is not so limited. Rather, Rule 23 is typically used to file class claims. Rule 9014 provides a similar, if more flexible, authority to allow class proofs of claim when the claim does not fall within the "adversary proceeding" definition of Rule 7001. In any "contested matter," which includes a dispute over any proof of claim that has been met by an objection, /17/ Rule 9014 states that Rule 7023 may be invoked by the bankruptcy court. Thus, after specifying that certain rules from Part VII of the Rules "shall apply," Rule 9014 provides that the bankruptcy court "may at any stage in a particular matter direct that one or more of the other rules in Part VII shall apply." That authorization permits bankruptcy courts, in their sound discretion, to apply Rule 7023 and, hence, to permit the filing of a class proof of claim. See American Reserve, 840 F.2d at 488. Both class-action and bankruptcy policies support this construction of Rules 7023 and 9014. Contrary to the court of appeals' apparent belief (Pet. App. 12a), the class-action device does not serve only the procedural goal of enabling similar claims to be joined in a single forum. An equally important purpose of class actions is to permit a representative to assert multiple claims that would not be brought individually. /18/ As the Seventh Circuit explained in American Reserve, 840 F.2d at 489, the cost of investigating a claim may be substantial, and many persons may not even be aware of the existence of a contingent claim. /19/ This "means that for many small claims, it is class actions or nothing" (ibid.). Far from being "unnecessary in a bankruptcy proceeding" (Pet. App. 12a), a class proof of claim enables such claims to be brought and thereby promotes the redress of legitimate claims on their merits. Permitting class proofs of claim also serves the policies of the Bankruptcy Code. Thus, the broad definition of the term "claim" in the Code (11 U.S.C. 101(4)) reflects Congress's intent to enable all claims against the debtor to be heard in bankruptcy. The House Report states (H.R. Rep. 95-595, supra, at 309): "By this broadest possible definition, and by the use of the term throughout the title 11, especially in subchapter I of Chapter 5 (concerning the filing and treatment of claims), the bill contemplates that all legal obligations of the debtor * * * will be able to be dealt with in the bankruptcy case." The holders of small claims are no less claimants than are those with a single large claim against the debtor that is easily identified and filed. As the American Reserve court explained (840 F.2d at 489 (footnote omitted)), "other creditors have no right to the higher share of the debtor's assets they can achieve by excluding rival creditors at the threshold." Adopting a construction of the Rules so as to erect a procedural barrier to the pursuit of small creditors' claims would run counter to that principle. /20/ History lends additional support to the recognition of class proofs of claim in bankruptcy. First, although very few cases reached the stage of judicial decision on the permissibility of such class claims until recent years, /21/ class claims have been filed in bankruptcy, and settled, for many years (see note 11, supra). And, as the Seventh Circuit observed in American Reserve (840 F.2d at 490), some of the earliest class actions involved claims filed on behalf of a class of creditors. Second, current Rules 7023 and 9014, Bankr. R., are the successors of Rules 723 and 914 of the Bankruptcy Rules of 1973, which were in all material respects identical to their present counterparts. See 11 U.S.C. (Supp. III 1973) App. at 304, 317. Prior to 1973, bankruptcy practice was governed by orders of this Court, including General Order 37, which stated (11 U.S.C. (1970 ed.) App. at 2211) that in bankruptcy proceedings the Federal Rules of Civil Procedure "shall, in so far as they are not inconsistent with the (Bankruptcy) Act or with these general orders, be followed as nearly as may be." That broad language encompassed application of Rule 23, Fed. R. Civ. P., which permits the filing of class claims. There is no indication of an intent to adopt a much more constricted form of class-action procedures when more detailed bankruptcy rules were prescribed in 1973. Finally, Rules 3003(c)(2) and 3001(b), on which the court of appeals relied (Pet. App. 9a-10a), do not suggest that Rules 7023 and 9014 should not be given their natural meaning. Rule 3003(c)(2) states that a "creditor" in certain circumstances must file a proof of claim in order to recover, but the provision does not address who may file on the creditor's behalf, let alone whether a class representative may file. Rule 3001(b) likewise does not purport to address the issue of class claims; and in any event, its language, like that of Code Section 501(a), readily encompasses class proofs of claim. In particular, when a class representative is certified to represent unnamed creditors, such a representative is an "authorized agent" within the meaning of Rule 3001(b). See American Reserve, 840 F.2d at 490. /22/ 3. Although, for the above reasons, the court of appeals erred in holding that class proofs of claim are not permissible in bankruptcy, several considerations make it inadvisable, we think, for the Court to grant the petition in this case in order to address the question. First, the parties appear to be well on their way toward a settlement of the class claim in this case. Petitioner states (Pet. 8 n.4) that "a settlement agreement in principle has been reached but has not received the necessary approvals of various courts." The case might well become moot before the Court could hear it, let alone decide it. Second, we are informed that the Advisory Committee on Bankruptcy Rules is now meeting regularly to consider proposed changes in the Bankruptcy Rules. The Committee is expected to propose revisions some time during 1989, and those proposals would then be subject to public comment and, with further revisions, would be forwarded to this Court (28 U.S.C. 2075). While the current Rules are sufficient to authorize bankruptcy courts to permit class proofs of claim, the issue could, and might well, be addressed further in the current round of revisions of the Bankruptcy Rules. /23/ Such action might make it unnecessary for this Court to decide the question under present law. Third, the conflict between the Seventh and Tenth Circuits is not so pressing as to demand immediate resolution. No other court of appeals has ruled on the question, although the issue is now before the Eleventh Circuit in In re The Charter Co., No. 88-3303. If, as has started to happen, the issue begins to arise more frequently, it will be brought to this Court again. At that time, if the conflict among the circuits persists and the Rules do not resolve it, certiorari will be warranted. This Court's review, however, is not currently necessary. CONCLUSION The petition for a writ of certiorari should be denied as to the first question. Respectfully submitted. CHARLES FRIED Solicitor General DONALD B. AYER Deputy Solicitor General RICHARD G. TARANTO Assistant to the Solicitor General DANIEL L. GOELZER General Counsel PAUL GONSON Solicitor JACOB H. STILLMAN Associate General Counsel RICHARD A. KIRBY Assistant General Counsel MARTHA H. MCNEELY Special Counsel LESLIE E. SMITH Attorney Securities and Exchange Commission AUGUST 1988 /1/ Section 1109(a) states: "The Securities and Exchange Commission may raise and may appear and be heard on any issue in a case under this chapter, but the Securities and Exchange Commission may not appeal from any judgment, order, or decree entered in the case." /2/ Dann Sheftelman died while the case was pending in the court of appeals. The court of appeals substituted Sandra Centeio, the executrix of Sheftelman's estate, as the appellant. Pet. App. 4a n.2. The instant petition has nevertheless been filed in the name of Dann Sheftelman. We refer in this brief to "petitioner" without regard to Centeio's substitution for Sheftelman. /3/ The indenture trustee of the bond purchasers, the National Bank of Georgia, was listed as a scheduled creditor of NSNJ but not of Standard (Pet. App. 10a n.7). Although the bonds had been issued in bearer form, by January 1985 the indenture trustee had compiled a mailing list of approximately 600 names and addresses of bondholders (id. at 32a). /4/ Any such action against those entities would have been barred by the automatic-stay provision of the Bankruptcy Code, 11 U.S.C. 362(a), because they were in reorganization. /5/ Rule 7023, Bankr. R., states: "Rule 23 F.R. Civ. P. applies in adversary proceedings." Although the debtor's objection to petitioner's claim would not appear to have created an "adversary proceeding" as that term is defined in Rule 7001, the objection did create a "contested matter" within the meaning of the Bankruptcy Rules. See Bankr. R. 9014, advisory committee's note. Rule 9014, pertaining to contested matters, provides that "(t)he court may at any stage in a particular matter direct that one or more of the other rules in Part VII shall apply." Rule 7023 is contained in Part VII of the Bankruptcy Rules. /6/ The court struck petitioner's individual claim as untimely and denied the motion for an extension of the claims bar date for two reasons (Pet. App. 40a-49a). First, the court concluded that petitioner had failed to comply with discovery orders (id. at 42a-43a). Second, it ruled that he had failed to show cause justifying the late filing (id. at 43a-49a), concluding in the course of that ruling that Standard was not required to give notice of the bar date to petitioner or to other bondholders. /7/ Rule 3001(b) states: "Who May Execute. A proof of claim shall be executed by the creditor or the creditor's authorized agent except as provided in Rules 3004 and 3005." Rule 3004 permits the debtor or trustee to file a proof of claim for a creditor in specified circumstances. Rule 3005 permits such a filing, in certain circumstances, by a person that may be liable with the debtor to the particular creditor or that has secured that creditor. Neither is applicable in this case. /8/ In May 1985, following the ruling of the bankruptcy court, the district court in the New Jersey action certified the class (Pet. App. 3a n.1). /9/ Rule 3003(c)(2) states in pertinent part: "Any creditor * * * whose claim * * * is not scheduled * * * shall file a proof of claim * * * and (any) creditor who fails to do so shall not be treated as a creditor with respect to such claim for the purposes of voting and distribution." /10/ One of the other two decisions was subsequently reversed on the class-claim issue by the district court. (That reversal, following the court of appeals decision in this case, was itself reversed on appeal. In re American Reserve Corp., 840 F.2d 487 (7th Cir. 1988).) In the other unpublished decision cited by the court of appeals, the class-claim issue was not contested. /11/ We construe the first question in the petition as raising the class-claim issue. We do not take a position on the second, narrower question presented by petitioner -- whether the dismissal of his individual claim as a discovery sanction was proper (Pet. i, 11-13). Should the Court deny certiorari on the individual-claim question, petitioner would cease to be a proper class representative in this case, as he would no longer have an individual claim as a bondholder against the debtor's estate. Nevertheless, petitioner may have a sufficient financial stake in the outcome of the class-claim issue to prevent the issue from becoming moot even as to him. Although he has not yet so alleged, petitioner may have a continuing financial obligation to counsel in this case that might be partly satisfied out of a class recovery even if there were a new class representative on remand. Deposit Guar. Nat'l Bank v. Roper, 445 U.S. 326, 338 n.9 (1980); see also United States Parole Comm'n v. Geraghty, 445 U.S. 388 (1980). In addition, Gonzalo Agosto and James R. Mitcham, two class members who were certified as representatives of the bondholder class by the district court in New Jersey, have filed a motion in this Court seeking to intervene and to be joined as co-petitioners, thus demonstrating the continuing active interest in the class-claim issue of bondholders who still have live claims against Standard. That interest should allay prudential concerns about whether a ruling on the issue by this Court would be merely advisory. Cf. United Airlines, Inc. v. McDonald, 432 U.S. 385 (1977) (unnamed class members may timely intervene in the district court to appeal a denial of class certification after the named plaintiffs' claims have been dismissed). /12/ No other court of appeals has ruled on the permissibility of class proofs of claim. As noted by the Tenth Circuit (Pet. App. 13a) and the Seventh Circuit (840 F.2d at 488), most bankruptcy courts that have considered the issue have ruled against the filing of a class proof of claim in bankruptcy. See, e.g., In re Arrow Air, Inc., 75 Bankr. 372, 373-374 (Bankr. S.D. Fla. 1987); In re Electronic Theatre Restaurants Corp., 57 Bankr. 147, 148-149 (Bankr. N.D. Ohio 1986); In re Johns-Manville Corp., 53 Bankr. 346, 350-351 (Bankr. S.D.N.Y. 1985); In re Baldwin-United Corp., 52 Bankr. 146, 149 (Bankr. S.D. Ohio 1985); In re Computer Devices, Inc., 51 Bankr. 471, 474-476 (Bankr. D. Mass. 1985); Pet. App. 31a-49a (this case; subsequent history described in text above); In re Grocerland Cooperative, Inc., 32 Bankr. 427, 435 (Bankr. N.D. Ill. 1983); In re Shulman Transport Enterprises, Inc., 21 Bankr. 548, 551 (Bankr. S.D.N.Y. 1982), aff'd on other grounds, 33 Bankr. 383 (S.D.N.Y. 1983), aff'd, 744 F.2d 293 (2d Cir. 1984); In re Woodmoor Corp., 4 Bankr. 186, 190-192 (Bankr. D. Colo. 1980). At least two unreported decisions by bankruptcy courts have held class proofs of claim permissible. See American Reserve, 840 F.2d at 488 (noting that bankruptcy court in that case had recognized a class proof of claim, a ruling that was reversed by the district court, 71 Bankr. 32 (N.D. Ill. 1987), only to be reinstated by the Seventh Circuit); In re Wickes Cos., Inc., No. LA-82-06657-WL (Bankr. C.D. Cal. July 15, 1983) (described in Pet. App. 13a). /13/ The Senate Report says of Section 501(a) (S. Rep. 95-989, supra, at 61): "This subsection is permissive only, and does not require filing of a proof of claim by any creditor. * * * The Rules of Bankruptcy Procedure and practice under the law will guide creditors as to when filing is necessary and when it may be dispensed with. * * * The Rules of Bankruptcy Procedure will set the time limits, the form, and the procedure for filing, which will determine whether claims are timely or tardily filed." Also, in describing an amendment to 28 U.S.C. 2075, the provision that authorizes this Court to prescribe rules of bankruptcy procedure, the Senate and House Committees explained more generally (S. Rep. 95-989, supra, at 158; H.R. Rep. 95-595, supra, at 499): "Nearly all procedural matters have been removed and left to the Rules of Bankruptcy Procedure." /14/ Of course, if a class claim is ultimately allowed in a particular bankruptcy proceeding (i.e., if the class is found entitled to recover), members of the class presumably would have to submit individual claims for their shares of the recovery. They would not have to do so, however, before the class claim is litigated, as the Tenth Circuit view would require. /15/ There is no basis for a contention that the 1978 Congress, in enacting the Code, implicitly precluded class proofs of claim by ratification of prior law. There was no settled law at the time of the Code's enactment: the issue had barely been litigated, and there was debate about its proper resolution. See Wohlmuth, The Class Action and Bankruptcy: Tracking the Evolution of a Legal Principle, 21 UCLA L. Rev. 577 (1973) (only one decision at the time of writing). No court of appeals had reached the issue. One reported bankruptcy court decision rejected class claims. In re Society of The Divine Savior, 15 Fed. R. Serv. 2d (Callaghan) 294, 298 (Bankr. E.D. Wis. 1971). And two district courts reached a similar conclusion in decisions that were not reported but were mentioned in the court of appeals opinions reviewing them on other grounds. In re Stirling Homex Corp., 579 F.2d 206, 209-210 n.5 (2d Cir. 1978), cert. denied, 439 U.S. 1074 (1979); In re Cartridge Television, Inc., 535 F.2d 1388, 1389-1390 (2d Cir. 1976). Especially in view of the scholarly debate on the issue, and the absence of any supportive evidence in the legislative history, it is implausible to suppose that Congress was silently ratifying the position taken in this handful of lower court cases. Any such inference would be especially inappropriate where, as here, the legislative history indicates that Congress was deliberately declining to address the issue -- i.e., to specify when and how proofs of claim must be filed for a claimant to recover. We note, too, that in the course of conducting its statutory reviews of reorganization plans under Chapter 10 of the former Bankruptcy Act (see 11 U.S.C. (1976 ed.) 572), the Security and Exchange Commission reviewed a number of plans that included provisions settling class claims. /16/ Rule 7001 sets forth ten categories of bankruptcy litigation that it defines as "adversary proceedings." Rule 7001 would not cover claims for money damages against the debtor, but it would reach claims that property in the hands of the debtor belongs to the claimants, such as a class claim that the debtor holds proceeds of a stock fraud in constructive trust for the claimants. /17/ See Bankr. R. 9014 advisory committee's note ("Whenever there is an actual dispute, other than an adversary proceeding, before the bankruptcy court, the litigation to resolve that dispute is a contested matter. For example, the filing of an objection to a proof of claim * * * creates a * * * contested matter."). /18/ See, e.g., Deposit Guar. Nat'l Bank v. Roper, 445 U.S. at 339; Califano v. Yamasaki, 442 U.S. at 701; Wohlmuth, 21 UCLA L. Rev. at 593-594; Kalven & Rosenfeld, The Contemporary Function of the Class Suit, 8 U. Chi. L. Rev. 684, 685-686, 714 (1941). /19/ For example, in this case, some bondholders might have believed that only NSNJ, and not Standard, could be liable to them. Moreover, although the form that is used for filing a proof of claim (see Bankruptcy Rules, Official Form 19) may be simpler and less expensive to complete than a civil complaint, Rule 9011 of the Bankruptcy Rules incorporates Rule 11, Fed. R. Civ. P., which requires that a claimant make a reasonable inquiry into the facts and the law supporting his claim before filing. The burden and cost of such an investigation of a claim for securities fraud can be substantial. /20/ Although the Code and Rules aim at efficiency in bankruptcy administration, concerns about the potential for delay are no ground for rejecting class proofs of claim. First, the price of denying class claims would be the sacrifice of some legitimate claims for the sake of others. Second, there is no reason to think that allowing class proofs of claim would produce any unreasonable delay. And, in any event, the Code specifically provides tools to promote a speedy distribution to creditors and shareholders. Section 502(c)(1), 11 U.S.C. 502(c)(1), provides for estimation of "any contingent or unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the closing of the case." That procedure -- which might have to be employed even for individually filed claims -- can be used together with the notice procedures of Rule 23 to determine the amount of potential liability if the claims are not settled and such a determination becomes necessary. See American Reserve, 840 F.2d at 491-492. /21/ The paucity of such judicial decisions during the period before 1966 is due in part to the fact that it was not until 1966 that Rule 23, Fed. R. Civ. P., greatly broadened the availability of class actions in civil actions in the district courts. /22/ Even if the current Bankruptcy Rules were construed not to grant affirmative authorization for class proofs of claim, it would still remain true that nothing in the Rules expresses an affirmative prohibition. If the Rules were thus read as silent on the subject, the question would arise whether the bankruptcy courts should nonetheless permit the filing of class proofs of claim. Against the background of bankruptcy courts' traditional equity powers (see Pepper v. Litton, 308 U.S. 295, 304 (1939)), Section 105(a) of the Code, 11 U.S.C. 105(a), declares that "(t)he bankruptcy court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of (the Code)." See generally S. Rep. 95-989, supra, at 29; H.R. Rep. 95-595, supra, at 316-317. As noted in American Reserve, 840 F.2d at 490, courts of equity historically have permitted class claims, and doing so serves the purposes of the Bankruptcy Code. /23/ The Securities and Exchange Commission has brought the matter to the Committee's attention and is urging the Committee to propose language that makes even more explicit than the Rules already do that class proofs of claim are permitted in bankruptcy.