Objection to Claims; Punitive Damages
In re CLC of Dahlonega, LLC, 2005 Bankr. LEXIS 2754 (Case No. 04-21769 et al.) (Bankr. N.D. Ga. October 3, 2005) (Brizendine)
The debtor objected to proofs of claim for punitive damages filed by various claimants alleging wrongful death and personal injuries. The court noted that the Eleventh Circuit has previously held that allowing claims for punitive damages was inappropriate as it requires innocent creditors to bear the burden of the debtor’s wrongdoing. Novack v. Callahan, 681 F.2d 1295 (11th Cir. 1982). However, the decision has been subject to some recent criticism. See, e.g., In re A.G. Financial Service Ctr., 395 F.3d 410 (7th Cir. 2005).
The court determined that punitive damages should not automatically be prohibited in bankruptcy cases, nor should they be automatically allowed. The court should analyze state law interests in punishing liable parties with concerns for equitable claims distribution in a bankruptcy case. The claims objections were, therefore, deferred until the presentation of a plan of reorganization.
