Introduction

In a nonprecedential yet instructive summary order, the Second Circuit affirmed the expungement of a creditor’s proof of claim in a Chapter 7 case, resolving three recurring bankruptcy practice issues:

• Timeliness of objections to claims under Federal Rule of Bankruptcy Procedure 3007 in the absence of a court-set deadline or hearing.
• Whether a Chapter 7 trustee is bound (under res judicata or nonparty preclusion doctrines) by a judgment in an adversary proceeding litigated solely between a creditor and the debtor.
• The evidentiary requirements to pierce the corporate veil on a fraud theory under Maryland and New York law, particularly the need for fraudulent intent at the time of contract formation.

The case arose from a proof of claim filed by Myer’s Lawn Care Services, Inc. (“Myer’s”) in the individual Chapter 7 case of debtor Russell Fragala. The alleged debt originated in contracts between Myer’s and Fragala’s corporation, Russ Fragala Landscape Corporation. After the Chapter 7 trustee, Robert L. Pryor, moved to expunge the claim, the bankruptcy court granted the motion, and the district court affirmed. Myer’s appealed to the Second Circuit.

Although issued as a summary order (and therefore nonprecedential under this Court’s rules), the decision offers clear guidance on the interplay between claims allowance, adversary proceedings over dischargeability, trustee standing and incentives, and the timing of claim objections.

Summary of the Opinion

• Standard of review: The Second Circuit reviewed the district court’s decision de novo, applying clear-error review to the bankruptcy court’s fact findings and de novo review to legal conclusions (citing In re Tingling, 990 F.3d 304, 307 (2d Cir. 2021)).
• Timeliness under Rule 3007: The trustee’s objection to Myer’s claim was timely because no hearing or deadline for objections had been scheduled. Bankruptcy Rule 3007 requires only that objections be filed at least 30 days before a scheduled hearing or any deadline to request one; absent such settings, there is effectively no fixed objection deadline.
• No nonparty preclusion against the trustee: The trustee was not bound by an earlier adversary proceeding—between Myer’s and the debtor alone—in which the bankruptcy court noted Myer’s had “an allowed claim” as “uncontested.” Applying Taylor v. Sturgell, 553 U.S. 880 (2008), and In re Montgomery Ward, LLC, 634 F.3d 732 (3d Cir. 2011), the panel held that the trustee lacked the requisite “substantive legal relationship” or privity with the debtor due to “misaligned incentives.” Thus, res judicata/nonparty preclusion did not bar the trustee’s objection.
• Merits—veil piercing on fraud theory fails: Even assuming Myer’s adequately preserved its fraud-based veil-piercing argument, the bankruptcy court’s factual finding that there was no fraudulent intent at the time of contracting was not clearly erroneous. Under both Maryland and New York law, fraud sufficient to pierce the corporate veil requires a false representation made to induce the contract, not merely post-breach explanations.
• “Forfeiture” of corporate-veil defense rejected: The court clarified that veil piercing is the plaintiff’s burden; it is not a defense that a defendant can forfeit under Maryland or New York law.
• Disposition: The judgment of the district court affirming expungement was affirmed.

Analysis

Precedents Cited and Their Influence

• In re Tingling, 990 F.3d 304 (2d Cir. 2021): Cited for the appellate standard of review in bankruptcy appeals—clearly sets the reviewing framework: de novo for legal questions and clear error for factual findings. This underscores why the Second Circuit deferred to the bankruptcy court’s fact-finding on fraud.
• Bankruptcy Rule 3007 and 3008:
  • Rule 3007(a)(1): Provides only a minimum lead time before a hearing; it does not impose a freestanding limitations period for objections. Because no hearing or deadline was set, the trustee’s objection was timely.
  • Rule 3008: Allows reconsideration of orders allowing or disallowing claims. The trustee alternatively invoked this route, but the panel’s timeliness finding under Rule 3007 made it unnecessary to rely on Rule 3008.
• In re Best Payphones, Inc., 523 B.R. 54 (Bankr. S.D.N.Y. 2015), and In re Tesmetges, 87 B.R. 263 (Bankr. E.D.N.Y. 1988): The court endorsed the view that bankruptcy law does not impose a statute of limitations on claim objections in Chapter 7; trustees may object up to case closing absent contrary orders. These authorities anchor the panel’s conclusion that the trustee’s objection was timely.
• Taylor v. Sturgell, 553 U.S. 880 (2008): The Supreme Court’s framework for nonparty preclusion. The general rule is that nonparties are not bound by judgments unless an exception applies (e.g., certain substantive legal relationships). The panel uses Taylor to reject binding the trustee to a judgment in a creditor–debtor adversary in which the trustee did not participate.
• Esquire Trade & Finance, Inc. v. CBQ, Inc., 562 F.3d 516 (2d Cir. 2009), and EDP Medical Computer Systems, Inc. v. United States, 480 F.3d 621 (2d Cir. 2007): The court clarifies that Taylor’s refinement of privity/nonparty preclusion applies in bankruptcy contexts, undercutting Myer’s reliance on EDP Medical to the contrary.
• In re Montgomery Ward, LLC, 634 F.3d 732 (3d Cir. 2011): Persuasive authority emphasizing that a bankruptcy trustee is not merely the debtor’s successor in interest. Because the trustee represents the estate and all creditors, misaligned incentives between debtor and trustee often preclude privity—exactly the dynamic the panel finds here.
• 11 U.S.C. § 704(a)(5) and Bankruptcy Rule 2002(e): Statutory and rule-based backdrop on the trustee’s duties. Section 704(a)(5) obliges a trustee to examine claims and object to improper claims “if a purpose would be served,” which may not be the case in an apparent no-asset case. Rule 2002(e) likewise contemplates no-asset situations where filing proofs of claim may be unnecessary. The panel used this to illustrate why the trustee’s interests may not even materialize early in the case—reinforcing the lack of privity with the debtor in the adversary proceeding.
• Surabian v. Picard, 2014 WL 917091 (S.D.N.Y. Mar. 7, 2014): Cited for the trustee’s duty to preserve estate property and maximize distributions—another signal that the trustee’s fiduciary perspective differs from the debtor’s litigation incentives.
• Dynacorp Ltd. v. Aramtel Ltd., 56 A.3d 631 (Md. App. 2012), and New Hackensack Realty, LLC v. Lawrence Dev. Realty, LLC, 226 A.D.3d 799 (2d Dep’t 2024): Authorities confirming that fraud-based veil piercing (or fraudulent inducement theories supporting veil piercing) require proof of a false representation made to induce contract formation—a temporal and substantive requirement Myer’s failed to satisfy.
• Turner v. Turner, 809 A.2d 18 (Md. App. 2002), and TNS Holdings, Inc. v. MKI Sec. Corp., 92 N.Y.2d 335 (1998): Both jurisdictions place the burden on the plaintiff to establish grounds for veil piercing; it is not a defense subject to forfeiture by the defendant.
• Bankruptcy Rule 9024 and Federal Rule of Civil Procedure 60: Myer’s argued the trustee’s only recourse was a Rule 9024/Rule 60 motion in the adversary proceeding. The panel rejected this because the trustee was not bound by that judgment in the first place; therefore, he could proceed via Rule 3007.

Legal Reasoning

1. Timeliness of the trustee’s objection (Rule 3007):

   Bankruptcy Rule 3007(a)(1) establishes a notice period tied to a hearing schedule; it does not impose a global limitations period for objections. Because the bankruptcy court had not scheduled any hearing on claim objections, had not set any deadlines for claim holders to request a hearing, and had not imposed its own claim-objection deadline, the trustee’s objection was timely. This reading accords with long-standing bankruptcy practice and the cited authorities stating there is no statute of limitations for Chapter 7 claim objections up to case closure.

2. No nonparty preclusion of the trustee by debtor-only adversary judgment:

   Myer’s relied on a prior adversary in which it obtained a statement that it had “an allowed claim” because it was “uncontested.” The Second Circuit held the trustee was not bound because he was not a party. Taylor v. Sturgell generally forbids binding nonparties unless an exception applies, such as a substantive legal relationship warranting preclusion. Although a trustee has a relationship with the debtor, In re Montgomery Ward explains that the trustee is not merely a successor; the trustee represents the estate and all creditors. Here, the incentives were misaligned: the debtor’s goal in the adversary (a nondischargeability action) focused on dischargeability, not claim validity, while the trustee’s duty—particularly once assets appear—includes examining and objecting to improper claims to protect distributions. The trustee’s interests were not represented in the adversary and, early in what appeared to be a no-asset case, may not even have existed yet. Therefore, preclusion did not apply, and the trustee was free to object under Rule 3007.

   The court also rejected Myer’s contention that bankruptcy cases follow a different preclusion standard than Taylor (via EDP Medical), noting that Taylor’s nonparty-preclusion principles do apply in bankruptcy, as recognized in Esquire Trade & Finance.

3. Merits—fraud-based veil piercing fails for lack of inducement fraud:

   Veil piercing on a fraud theory in both Maryland and New York requires proof of a false representation made to induce the contract; post-breach misrepresentations about why the corporation failed to pay do not suffice. The bankruptcy court found Myer’s presented no evidence—aside from a conclusory affidavit—that Fragala intended to defraud at the time of contracting. The Second Circuit found no clear error in those factual determinations. Without evidence of inducement fraud at the time the contracts were formed, veil piercing fails in both jurisdictions.

   The court also clarified that veil piercing is the plaintiff’s burden; it is not an affirmative defense that can be forfeited by how a defendant pleads or responds in parallel state-court litigation.

Impact

• Trustee autonomy from debtor litigation: This decision reinforces that a Chapter 7 trustee is not automatically bound by judgments in adversary proceedings between creditors and the debtor. Especially where the debtor’s incentives focus on dischargeability (not claim validity), trustees may later object to claim allowance without first seeking relief from the adversary judgment under Rule 9024/Rule 60. This is significant for cases where assets later materialize, activating the trustee’s duty to police claims.
• Timing of claim objections: Absent a court-imposed deadline or hearing schedule, claim objections under Rule 3007 can be brought effectively any time up to case closure in Chapter 7. Creditors should not assume the mere passage of time insulates their proofs of claim from objection.
• Dischargeability actions do not adjudicate allowance: A declaration about dischargeability in an adversary proceeding does not necessarily establish claim allowance against the estate, particularly when the trustee is not a party. Creditors seeking judgments with binding effect on claim allowance should ensure the trustee is joined, served, or otherwise participates.
• Heightened proof for veil piercing: The opinion underscores the stringent, timing-sensitive nature of fraud-based veil piercing in Maryland and New York. Evidence must support fraudulent intent at contract formation, not merely post-breach statements. Conclusory affidavits are insufficient.
• Practice pointer for trustees and courts: Courts may wish to set structured timelines or hearing dates for claim objections where needed; otherwise, trustees retain broad temporal latitude. Trustees should monitor for asset discovery that makes objections purposeful under § 704(a)(5).
• Persuasive but not precedential: While a summary order lacks precedential effect, it may be cited under FRAP 32.1 and Second Circuit Local Rule 32.1.1. Practitioners can rely on this order as persuasive authority on nonparty preclusion and Rule 3007 timing.

Complex Concepts Simplified

• Claim allowance vs. dischargeability: Claim allowance determines whether a creditor has a valid claim against the bankruptcy estate and can share in distributions. Dischargeability determines whether the debtor’s personal liability for the debt is wiped out after bankruptcy. An adverse ruling on dischargeability does not automatically mean the claim is allowed against the estate, and vice versa.
• Res judicata and nonparty preclusion: Generally, only parties to a case (and those in certain close legal relationships with them) are bound by a judgment. Under Taylor v. Sturgell, nonparties are not bound unless specific exceptions apply (e.g., successor-in-interest, adequate representation). A Chapter 7 trustee’s interests can diverge from the debtor’s, defeating privity.
• Rule 3007 objections: This rule governs how to object to a proof of claim. It does not set a fixed objection deadline; it prescribes notice timing relative to a hearing. Without a court-set hearing or deadline, objections can be raised later, up to case closure.
• Rule 3008 (reconsideration) vs. Rule 3007 (objection): Rule 3008 is used to revisit an order allowing/disallowing a claim. If the trustee is not bound by a prior judgment at all (because he wasn’t a party), he may proceed under Rule 3007 rather than seeking relief under Rule 9024/Rule 60 from that prior judgment.
• Trustee’s duty to object to claims: Under 11 U.S.C. § 704(a)(5), the trustee must examine and object to improper claims “if a purpose would be served,” typically when an estate has assets to distribute. In no-asset cases, there may be little reason to object until assets appear.
• Fraud-based veil piercing: To hold an individual personally liable for a corporation’s debt based on fraud, a creditor generally must prove a false statement made to induce the formation of the contract (not just explanations offered after a breach), plus other veil-piercing factors. The burden rests on the creditor, and it is not a defense that the debtor can “forfeit.”

Conclusion

The Second Circuit’s summary order in Myer’s Lawn Care Services, Inc. v. Pryor affirms three important propositions for bankruptcy practice. First, a Chapter 7 trustee’s claim objection under Rule 3007 is timely absent a court-set hearing or deadline; there is no inherent statute of limitations for Chapter 7 claim objections up to case closure. Second, a trustee is not automatically bound by a judgment in an adversary proceeding between a creditor and the debtor alone—particularly where the debtor’s and trustee’s incentives diverge, as in nondischargeability litigation. Third, fraud-based veil piercing demands proof of fraudulent intent at the time of contracting, not post-breach rationalizations, and the burden lies with the creditor.

While nonprecedential, the ruling provides persuasive guidance within the Second Circuit on the autonomy of trustees vis-à-vis debtor litigation, the flexible timing of claim objections, and the rigorous evidentiary standard for veil piercing. For creditors, it serves as a caution: victories in debtor-only adversary proceedings may not insulate claims from later scrutiny by the trustee; and conclusory allegations will not carry the day on veil-piercing theories. For trustees, it reinforces both their independence and their duty to protect the estate once a purpose to object to claims arises.