Opinion
Case No. 02 B 02474
April 2, 2003
MEMORANDUM OPINION
This matter is before the court on the Motion of Whitehead Mann, Inc. ("WMI") for Determination that Claim Cannot be Barred, Due to Lack of Notice of Bar Date, or, in the Alternative, for Enlargement of Time to Permit Filing of Proof of Claim Pursuant to Bankruptcy Rule 9006(b). The claim was filed after the July 31, 2002 bar date fixed by court order dated March 26, 2002. The relevant facts are not in dispute.
BACKGROUND
On October 26, 2000, WMI entered into a letter agreement with Kmart Corporation providing for WMI's assistance in the search to fill Kmart's Vice President/General Counsel position. The letter agreement provided that Kmart would make certain interim monthly payments to WMI, reimburse expenses, and ultimately pay one-third of the total annual starting compensation of any executive placed as a result of WMI's services, met of the monthly payments previously made. As of April 9, 2001, the scarch was successfully concluded and Kmart had made $100,000 in monthly payments under the agreement. WMI rendered a "Final Invoice" on that date for the remaining balance due under the agreement in the amount of $344,266. Kmart thereafter made certain other payments, resulting in a balance of $192,641 as of January 15, 2002, as reflected in a Statement of Account issued by WMI on or about that date.
One week later, on January 22, 2002, Kmart Corporation and thirty-seven of its subsidiaries and affiliates filed voluntary Chapter 11 petitions in this court. On or about April 1, 2002, Trumbull Services, LLC, the court-approved noticing agent in this case, sent notice of the July 31, 2002 claims bar date to Kmart's creditors and other parties in interest. Additional notices were thereafter served by Trumbull on certain parties omitted from the first mailing. WMI was not included in Kmart's schedules of liabilities and never received a formal notice of the bar date.
On or about June 10, 2002, the principal consultant at WMI responsible for the Kmart account, who was in contact with Kmart during the first half of the year and was generally aware of the bankruptcy filing, received an e-mail from Kmart suggesting that WMI access Trumbull's web site in order to obtain information about filing a proof of claim. On or about June 26, 2002, Grant Patrick, WMI's Chief Administrative Officer contacted the law firm of Ropes Gray to inquire about filing a claim in Kmart's bankruptcy. Ropes Gray informed Patrick that based on an on-line search, the bar date appeared to be July 31, 2002. Accordingly, Ropes Gray requested copies of the relevant documentation in order to prepare the proof of claim. Patrick avers in his affidavit filed in support of WMI's motion that on "such short notice, particularly given the vacation and travel schedules of various Whitehead Mann employees, we were unable to assemble and deliver the required documentation in time to have [Ropes Gray] prepare and file the Proof of Claim before the Bar Date."
WMI filed its proof of claim in the amount of $192,641 on August 14, 2002, two weeks late. The instant motion, for an order deeming the claim timely, was not filed until October 4, 2002. In the motion, WMI asserts that its claim cannot be barred because it never received proper notice of the bar date. In the alternative, WMI contends that its claim should be deemed timely on grounds of excusable neglect pursuant to Rule 9006(b)(1) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").
DISCUSSION
A fundamental requirement of due process is "notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Mullane v. Central Hanover Bank Trust Co, 339 U.S. 306, 314, 70 S.Ct. 652, 94 LEd. 865 (1950) (citations omitted). Accordingly, unless a creditor is given reasonable notice of the bankruptcy case and the relevant bar dates, his claim cannot be constitutionally discharged. In re O'Shaughnessy, 252 B.R. 722, 729 (Bankr. N.D. Ill. 2000) (citations omitted); see also Chemetron Corp. v. Jones, 72 F.3d 341, 346 (3rd Cir. 1995), cert. denied, 517 U.S. 1137, 116 S.Ct. 1424, 134 L.Ed.2d 548 (1996).
The court reviews the totality of circumstances to determine whether reasonable notice was given. O'Shaugnessy, 252 B.R., at 730. The court should consider, among other things, whether any inadequacies in the notice prejudiced the creditor and whether notice was given in enough time to afford a creditor sufficient opportunity to respond to "the impending deprivation of its rights." O'Shaugnessy, 252 B.R., at 730 ( citing In re Walker, 149 B.R. 511, 514 (Bankr. N.D. Ill. 1992)). Another circumstance to consider is whether a creditor who did not receive formal notice, nevertheless had actual knowledge of the bankruptcy case. See O'Shaugnessy, 252 B.R., at 730. "A party with actual notice of a bankruptcy case must act diligently to protect its interest, despite the lack of formal notice." O'Shaugnessy, 252 B.R., at 730 ( citing In re Marino, 195 B.R. 886, 893 (Bankr.N.D.Ill. 1996)). In certain circumstances, due process may be satisfied, notwithstanding failure to receive formal notice, if a creditor has informal actual knowledge of the bankruptcy case in sufficient time to take appropriate action. O'Shaugnessy, 252 B.R., at 730, 732. Even more cogently, due process may be satisfied where a creditor has informal actual knowledge of the relevant bar date. See, e.g., In re Fairchild Aircraft Corp., 128 B.R. 976 (Bankr. W.D.Tex. 1991) (holding that actual knowledge of claims bar date approximately three weeks prior thereto satisfied due process requirements, notwithstanding lack of formal notice).
Bankruptcy Rule 2002(a) provides, inter alia, that creditors are to receive "at least 20 days' notice by mail" of the bar date for filing proofs of claim in a Chapter 11 case. F.R.Bankr.P. 2002(a)(7). In this case, it is acknowledged that because WMI was not included in Kmart's schedules or creditor lists, it received no such formal notice of the bar date. However, the record establishes that WMI not only had actual knowledge "during the first half of [the] year" of the pendency of the bankruptcy case generally (through the WMI consultant responsible for the Kmart account), but it also had actual knowledge of the bar date itself by at least June 26, 2002. Indeed, both WMI and its counsel, Ropes Gray, had this knowledge as of June 26, 2002, a full 35 days before the July 31st deadline. This 35-day period is greater than the 20-day minimum set forth in Bankruptcy Rule 2002(a)(7). Moreover, WMI received an e-mail from Kmart as early as June 10, 2002, — 51 days before the bar date, — suggesting that WMI access Trumbull's web site in order to obtain information about filing a proof of claim.
Counsel for Kmart stated at the hearing that the failure to include WMI on the Debtors' schedules was inadvertent, and the court notes there has been no Suggestion anywhere in the record that the omission was intentional.
Accordingly, WMI had at least 35 days to prepare and file the claim, which was more than sufficient, particularly in light of the fact that the amount was already calculated and there was minimal documentation required. The documentation simply included the two-page letter agreement prepared in October, 2000 and the invoices previously submitted to Kmart. Under all the circumstances of this case, the notice afforded WMI satisfied due process requirements.
WMA advances an additional contention based on the terms of this court's March 26, 2002 order fixing the July 31st bar date. According to WMI, the "provisions of the Bar Order barring claims are contingent upon the express requirement that K-Mart provide creditors with four months notice of the Bar Date." (Motion, page 7)
In the March 26th order, the court did direct Trumbull to mail the bar date notice, together with the proof of claim forms, no later than April 1, 2002, thereby affording creditors approximately four months to prepare and file their claims. The court further decreed that notice given in the manner set forth in the order would constitute "adequate and sufficient notice" of the bar date and would be deemed to satisfy the requirements of the Bankruptcy Code, the Bankruptcy Rules, and the Local Rules for this district. Finally, the order provided in the eighth decretal paragraph that any "Person or Entity that is required to file a proof of claim in these Chapter 11 cases but that fails to do so in a timely manner . . . shall be forever barred" from asserting its claim against the Debtors or their property,
Although the order directed Trumbull to mail the notices by April 1, 2002 and further provided that such notice would constitute sufficient notice under the Code and Rules, there is nothing in the order precluding a finding that a lesser amount of notice would also be found adequate for all purposes, including due process requirements. Accordingly, WMI's contention that under the March 26th order, the bar of a late-filed claim is contingent upon receipt of four months' notice is without merit.
Finally, WMI requests that its claim be deemed timely on grounds of excusable neglect pursuant to Bankruptcy Rule 9006(b)(1). As the Supreme Court stated in Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), the determination of whether neglect is "excusable"
Rule 9006(b)(1) provides, with exceptions not relevant here, that "when an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court, the court for cause shown may at any time in its discretion (1) with or without motion or notice order the period enlarged if the request therefor is made before the expiration of the period originally prescribed or as extended by a previous order or (2) on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect."
is at bottom an equitable one, taking account of all relevant circumstances surrounding the party's omission. These include . . . the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.
Id. at 395. Pioneer also teaches that although "excusable neglect" is a somewhat "elastic concept," inadvertence, ignorance of the rules, or mistakes construing the rules do not usually constitute excusable neglect." Pioneer, 507 U.S., at 392.
WMI urges that the Pioneer factors favor a finding of excusable neglect in this case. However, other than Debtors' failure to provide timely formal notice, the only excuse offered by WMI is that "[g]iven the short period of time until the Bar Date and the vacation and travel schedules of various Whitehead Mann employees, Whitehead Mann was unable to assemble the required documentation in order to file the Proof of Claim before the Bar Date." (Motion, page 4) Applying the Pioneer factors, WMI contends that there is no prejudice to the Debtors because, inter alia, the claim is "vanishingly small," representing the "merest fraction of the $6 billion in unsecured nonpriority claims scheduled by K-Mart and K-Mart has yet to propose a plan of reorganization or even to begin the claims reconciliation and objection process." (Motion, page 9) WMI further argues that the delay was not unreasonably long and will not adversely affect case administration, that the reason for the delay lies with Kmart, through its failure to give formal notice, and that WMI has at all times acted in good faith.
Although Kmart has filed a plan since this matter was taken under advisement, the court, in fairness to WMI, is making its determination based on the record and status of the case as of the date of the hearing on WMI's motion.
While the court does not doubt that WMI and its counsel have at all times acted in good faith, the neglect in this case is, under all the circumstances, not excusable. The reason for the delay, at least as of June 26, 2002, and possibly as early as June 10, 2002, was not Kmart's failure to provide formal notice, but arose out of WMI's failure to take steps to ensure the timely filing of its claim. WMI was directed to Trumbull's web site on June 10, 2002, and both WMI and its counsel gained specific knowledge of the bar date no later than June 26, 2002. The delay was, at that point, clearly within WMI's reasonable control. Its only excuse for failure to file within the remaining 35 days was that "vacation and travel schedules of various Whitehead Mann employees" prevented WMI from assembling and delivering the required documentation in time to have its counsel file the claim. Again, the amount of the claim was already known and plainly set forth on the January 15, 2002 Statement of Account, and the documentation required to support the claim was minimal. Clearly, WMI could have timely filed either the claim itself or a motion for an extension of the deadline. Moreover, the motion seeking to have the claim deemed timely was not filed until October 4, 2002) even though WMI and its counsel both knew as of August 14, 2002 (the claim filing date) that the claim was two weeks late. There is no explanation offered for this additional 51-day delay in seeking approval for the late-filed claim.
CONCLUSION
For all of the reasons set forth above, the court denies WMI's Motion for Determination that Claim Cannot be Barred, Due to Lack of Notice of Bar Date, or, in the Alternative, for Enlargement of Time to Permit Filing of Proof of Claim Pursuant to Bankruptcy Rule 9006(b). This opinion constitutes the court's findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052. A separate order shall be entered pursuant to Bankruptcy Rule 9021.