With the advent of electronic case filing, the increased risk of identity theft, and proliferation of various privacy laws, creditors need to be more cautious than ever when filing their proofs of claim in bankruptcy cases to order to avoid inadvertent disclosure of the debtor’s personal information. This is of particular importance as to any invoices, statements of account or other documentary evidence that may be filed in support of the proof of claim.
We discuss below the applicable Bankruptcy Rule regarding public disclosure of the debtor’s personal information in a proof of claim and the possible consequences of any inadvertent violation of this Rule.
Scope of Bankruptcy Rule 9037
Rule 9037 of the Federal Rules of Bankruptcy Procedure requires that all electronic or paper filings with the bankruptcy court must be redacted if they contain any of the following personal information of the debtor or other individual: (1) social security number, (2) taxpayer ID number, (3) full name of any minor, (4) birth date, and (5) financial account number. The Rule is applicable to proofs of claims and all pleadings that are filed in bankruptcy cases, including all attachments or exhibits.
The Rule does not define “financial account number,” but some courts have construed the Rule broadly to include any statement of account or attached billing that identifies the debtor and lists the full account number. The Official Comment to the Rule notes that redaction of other personal information, such as driver’s license numbers or health care records, also may be appropriate or necessary.
In some jurisdictions, the courts also issue general orders to reinforce or augment the privacy requirements of Rule 9037.
Rule 9037(a)(1) specifically requires any filing party to redact the electronic or paper filing to list only the last four digits of an individual’s social security or taxpayer ID number, the year of the birth date, the minor’s initials and the last 4 digits of any financial account number.
The Rule exempts certain filings from the redaction requirement, such as the filing of the record of any administrative, agency, or court proceedings (if the underlying record was not subject to a redaction requirement). Rule 9037(d) also permits the Bankruptcy Court to redact additional information from any filing or to limit or prohibit other parties from obtaining electronic access to any filings in the bankruptcy case, for cause shown.
Rule 9037 does not purport to grant any safe harbor for the public disclosure of any personally identifiable information that might violate other privacy laws, such as Health Insurance Portability and Accountability Act (HIPPA) or the Gramm-Leach-Bliley Act (GLBA).
Possible Consequences of Violating the Rule
Rule 9037 does not specify any penalty or sanction for any filings made in violation of the Rule, nor prescribe any remedy to redress the potential harm caused by court filings that contain unredacted personal information.
However, there are many reported decisions in which debtors have brought suits or other enforcement actions against the offending creditor to enforce the Rule and/or compensate the debtor for the unlawful disclosure of his or her personal information in unredacted proofs of claim or other bankruptcy filings. The debtors typically allege a number of different legal theories, and they often seek a wide variety of relief, including disallowance of the proof of claim, compensatory damages, attorney’s fees and punitive damages. We provide a short discussion of the most common enforcement actions and possible outcomes.
Action to Enforce Rule 9037
In some cases, the debtors bring a motion to redact the personal information from the proof of claim as necessary to conform to the Rule, or to strike the proof of claim and prohibit further public access to it. The Debtors often will also seek reimbursement their attorney’s fees incurred in bringing these motion, which the courts will award in appropriate circumstances, particularly where the offending creditor has refused the debtor’s request for corrective action.
Private Rights of Action
In other cases, the debtors will bring suit against the offending creditor seeking compensatory and punitive damages. In these cases, the debtor typically alleges a number of different legal bases for recovery. They include the Bankruptcy Court’s inherent contempt power under Section 105(a) of the Bankruptcy Code to enforce the bankruptcy rules (and/or any applicable general orders of the court that may be applicable), other potentially applicable privacy laws such HIPPA or GLBA, and invasion of privacy or other common law torts. In addition, the debtors often also seek to disallow the proof of claim.
Thus far, the courts generally have found that there is no private right of action to enforce Rule 9037 or the court’s contempt power. Likewise, the courts have specifically determined that neither HIPPA, nor GLBA affords the debtor a private right of action to collect damages or attorney’s fees. In addition, the courts have found the Bankruptcy Code does not permit disallowance of a proof of claim solely for the violation of a disclosure rule, like Rule 9037.
Common Law Tort Claims
The case law is less developed in the area of common torts, such as invasion of privacy, and more dependent upon the applicable state law. In one reported case, the court found that under the applicable common law an unredacted proof of claim in a bankruptcy case did not satisfy a “publicity requirement.” In short, the court found that access to proofs of claims in the Court’s database (PACER) was restricted only to registered users who paid subscription fees. As such, the unredacted personal information in the proof of claim was not disclosed to the general public – which the court found was a necessary element to the tort claim.
In addition, absent a showing of actual harm from the filing of the unredacted proof of claim, such as identify theft, courts have dismissed tort claims on the grounds that the asserted damages were too speculative.
Even if the debtor is unsuccessful in prosecuting a private right of action, the courts appear willing to impose sanctions – attorney’s fees and punitive damages – against a creditor for filing an unredacted proof of claim in blatant or willful disregard of the requirements of Rule 9037. The basis for the sanction award is the Bankruptcy Court’s power under section 105(a) of the Bankruptcy Code to, in essence, police the bankruptcy system and enforce the rules.
The fact patterns often involve creditors who fail to take any corrective action after being made aware of the violation by the debtor. In one recent case, the Bankruptcy Court awarded both attorney’s fees and punitive damages against an attorney who filed the debtor’s unredacted financial statement as an exhibit to a contested motion after finding that the attorney failed to demonstrate any just cause for refusing to correct the problem upon request by the debtor. In addition, the Bankruptcy Court required the attorney to reimburse the debtor for any future costs incurred in credit monitoring to avoid the risk of future damages caused by the public disclosure of the debtor’s name, address, social security and date of birth in the bankruptcy filing.
• The Bankruptcy Rules impose specific non-disclosure requirements for personal information, which apply to the filing of proofs of claim and any documents filed in connection therewith.
• Creditors should carefully review all documents and exhibits to be filed with their proof of claims, particularly invoices, billing statements or other statements of account, to insure that the debtor’s personal information is redacted.
• Failure to redact the debtor’s personal information from proofs of claim can result in the bankruptcy court’s imposition of sanctions and other liability exposure.
• In the event of any inadvertent disclosure of the debtor’s personal information in a proof of claim, creditors should act quickly to voluntarily request that the court redact the personal information from the proof of claim and without waiting for any request from the debtor or the Bankruptcy Court to do so.