Opinion
Bankruptcy No. 02-15015DWS
July 25, 2003
MEMORANDUM OPINION
Before the Court is the Motion of Paula O'Gorman and Sarah Vuotto, Individually and on Behalf of Those Similarly Situated (the "Claimants"), to Enlarge the Time to File a Proof of Claim Nunc Pro Tunc (the "Motion"). For the reasons stated below, I will grant the Motion.
BACKGROUND
The following facts are derived from the court record and/or are uncontested. On or about December 19, 2001, the Claimants, former employees of the Debtor, filed a class action suit in the Eastern District of Pennsylvania (the "District Court Case") alleging that the Debtor violated the Worker Adjustment and Retraining Notification Act ("WARN Act"), 29 U.S.C. § 2101, et seq. by failing to give 60-day notice to certain workers affected by a plant closing. Exhibit A to Motion. On April 2, 2002, the Debtor filed a petition under Chapter 11 which operated as an automatic stay of the District Court Case. 11 U.S.C. § 362 (a)(1). Debtor notified the Claimants of the filing by faxing the same to Claimants' attorney on April 9, 2002. Prior to the litigation stay, a class had not been certified.
I shall take judicial notice of the docket entries in this case. Fed.R.Evid. 201, incorporated in these proceedings by F.R.Bankr.P. 9017.See Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1200 n. 3 (3d Cir. 1991); Levine v. Egidi, 1993 WL 69146, at *2 (N.D. Ill. 1993); In re Paolino, 1991 WL 284107, at *12 n. 19 (Bankr. E.D. Pa. 1991); see generally In re Indian Palms Associates. Ltd., 61 F.3d 197 (3d Cir. 1995). While a court may not take judicial notice sua sponte of facts contained in the debtor's file that are disputed, In re Augenbaugh, 125 F.2d 887 (3d Cir. 1942), it may take judicial notice of adjudicative facts "not subject to reasonable dispute . . . [and] so long as it is not unfair to a party to do so and does not undermine the trial court's factfinding authority." In re Indian Palms Assoc., 61 F.3d 197, 205 (3d Cir. 1995) (citing Fed.R.Evid. 201(f) advisory committee note (1972 proposed rules). Moreover, factual assertions in pleadings, which have not been superceded by amended pleadings, are judicial admissions against the party that made them. Larson v. Gross Bank, 204 B.R. 500, 502 (W.D. Tex. 1996) (statements in schedules). See also In re Musgrove, 187 B.R. 808 (Bankr. N.D. Ga. 1995) (same); In re Leonard, 151 B.R. 639 (Bankr. N.D.N.Y. 1992) (same).
Neither party sought to make an evidentiary record.
On July 9, 2002, the District Court entered an order staying the District Court Case.
The Debtor acknowledges failing to schedule the Claimants as unsecured creditors, but listing the District Court Case on its Statement of Financial Affairs. As such, the Claimants did not receive notice of the bar date, which I set at July 2, 2002 by order dated May 21, 2002. An unliquidated class claim was filed on August 8, 2002.
As Claimants presented no evidence, the circumstances that gave rise to the filing on August 8th are not of record. In re F.B.F. Industries, Inc., 1995 WL 691893 *10 n. 4 (Bankr. E.D. Pa. 1995) (citingBraden v. University of Pittsburgh, 477 F.2d 1, 6 (3d Cir. 1977) (statements in brief do not constitute record evidence unless admitted by the opposing party)).
Some eight months later, on March 25, 2003, the Debtor filed an objection to the Claim on the basis that it was filed after the bar date, it did not specify a claim amount, and the Debtor's records did not show that it owed the Claimants any monies (the "Objection"). On April 10, 2003, presumably in response to the Objection, the Claimants filed the Motion to Enlarge that is before me now.
At the request of counsel for the parties, I have continued the hearing on the merits of the Objection pending a determination of whether the time to file the proof of claim may be enlarged. Following the hearing, I allowed the Debtor's counsel to respond to the Claimants' brief. In its response, it raised a new issue, not framed by the Objection but noted at the hearing. It argues that the proof of claim should be disallowed because it is an improper class claim since the class was not certified prior to the bankruptcy case being filed. In their reply, Claimants contend that the issue is not presently before the Court. I expressly took under advisement the question of timeliness, all parties agreeing that it would be a waste of judicial resources to reach the merits of the Objection if the claim was time barred. Had the class action issue been set forth in the Objection and argued at the hearing, I would have likely reached it now but it was not. While Debtor has thoroughly briefed the question and Claimants have responded without waiving their own waiver argument, Claimants' procedural objection is well taken if not exactly practical. Therefore, I will neither rule on the adequacy of the proof of claim as a class claim nor the Claimants' position that Debtor has waived that basis to object. This matter is continued until August 25, 2003 for a merits hearing. Unless Debtor believes its objection to the class nature of the claim is framed by the existing boilerplate form objection, it should take appropriate steps to present the class claim objection through amendment to its Objection. At such time, Claimants will be free to renew their waiver argument. Likewise I do not now address Debtor's objection that the claim was in an unspecified amount, and Claimants' response and request that I order the Debtor to produce payroll records so that the Claimants could determine the estimated claim amount.
After the claim was filed and before the Objection was lodged, Debtor filed various plans and disclosure statements, none of which discussed a potential WARN act claim. I confirmed the Fourth Amended Plan on November 26, 2002.
The Claimants assert that not filing a proof of claim despite actual knowledge of the bankruptcy case does not bar their claim. They argue that known creditors without notice of the bar date should be permitted to file an untimely claim under the excusable neglect standard of Bankruptcy Rule 9006(b)(1). They state the delay to filing was minimal, they made a good faith inquiry to obtain a proof of claim, and the Debtor's reorganization case suffered no prejudice because the plan of reorganization was filed and confirmed after the Proof of Claim was filed.
The Debtor concedes that a late filing due to failure to receive actual notice of a bar date could constitute excusable neglect. See Memorandum of Points and Authorities of Spring Ford Industries, Inc. in Opposition to the Motion ("Debtor's Memo") at 7. However, it maintains that the Claimants did not act in good faith as they delayed filing their Motion for eight months and until after the plan confirmation to the prejudice of estate. See Debtor's Response to Motion ¶ 19.
DISCUSSION
I.
The court "shall fix and for cause shown may extend the time within which proofs of claim or interest may be filed." F.R.Bankr.P. 3003(c)(3). Creditors are then entitled to twenty days notice of the time fixed for filing a proof of claim. F.R.Bankr.P. 2002(a)(7). After the bar date has expired, the court may permit the filing of a claim "where the failure to act was the result of excusable neglect." F.R.Bankr.P. 9006(b).
The United States Supreme Court, in Pioneer Inv. Serv. Co. v. Brunswick Assocs. Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489 (1993), explained that excusable neglect requires inquiry into whether the failure to file resulted from neglect and then whether that neglect is excusable. Neglect encompasses both simple, faultless omissions to act and, more commonly, omissions caused by "carelessness" Id. at 388, 113 S.Ct. at 1495. The determination of whether the neglect is excusable 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, 113 S.Ct. at 1498. See also Welch Forbes, Inc. v. Cendant Corp. (In re Cendant Corp. Prides Litigation), 233 F.3d 188, 196 (3d Cir. 2000) (court shall consider totality of the circumstances). The burden of proof rests with the petitioner claiming excusable neglect to justify the allowance of a late proof of claim. Jones v. Chemetron Corp., 212 F.3d 199, 205 (3d Cir. 2000).
II.
The Claimants' failure to file a proof of claim before the bar date was a simple, faultless omission and qualifies as "neglect." Pioneer, 507 U.S. at 388. See also In re Lashinger, 1999 WL 409389 at *2 (Bankr. E.D. Pa. June 15, 1999) ("no question" that failure to timely file constitutes neglect). For the reasons that follow, I also find that the neglect was excusable.
Reason for Delay. The untimely filing resulted from Claimants' failure to receive actual notice of the bar date, a justification that has been found to support late filing. Pioneer, supra (unusual form of notice required finding that neglect was excusable); Elsom v. Woodward Lothrop, 1997 WL 476091 at *2 (E.D. Pa. Aug. 14, 1997) (claimants improperly notified of bar date not bound by it and may file late claims). See also Greyhound Lines, Inc. v. Rogers (In re Eagle Bus Mfg., Inc.), 62 F.3d 730, 735 (5th Cir. 1995) (creditor's claim can be barred for untimeliness only if received reasonable notice) (citation omitted). Where, as here, the absence of notice is a result of Debtor's omission, the case is even stronger. Manus Corp. v. NRG Energy, Inc., (In re O'Brien Environmental Energy, Inc.), 188 F.3d 116, 128-29 (3d Cir. 1999) (neglect excusable due in part to debtor's failure "to properly alert and notify" creditor to objection to claim).
While it is true that Claimants knew of the bankruptcy case, they had no duty to inquire about the claims bar date. New York v. New York, N.H. H.R. Co., 344 U.S. 293, 297, 73 S.Ct. 299, 301 (1953) ("[E]ven creditors who have knowledge of a reorganization have a right to assume that the statutory `reasonable notice' will be given them before their claims are forever barred."). See also Levin v. Maya Construction Co. (In re Maya Constr. Co.), 78 F.3d 1395, 1399 (9th Cir.), cert. denied, 519 U.S. 862, 117 S.Ct. 168 (1996) (as creditor's actual knowledge of bankruptcy proceeding "does not obviate the need for notice" no "duty to investigate and inject himself into the proceedings.") (citations omitted); Joseph B. Dahlkemper Co. v. Liberatore (In re Joseph B. Dahlkemper Co.), 170 B.R. 853, 861 (Bankr. W.D. Pa. 1994) ("The responsibility does not lie with creditors or claimants to search out what is required procedurally of them in this regard. The bankruptcy rules provide them with a right to appropriate and effective notice.").
Here the Claimants were known creditors of the Debtor, having initiated a lawsuit in the District Court on their claims. The Debtor evidenced its awareness of Claimants' claim by noting the District Court Case on its Schedules and faxing its bankruptcy petition to the Claimants, presumably to secure the "breathing spell" the automatic stay affords with respect to the litigation. Having been notified of the bankruptcy case by Debtor, Claimants had a reasonable expectation that they were on the service list and would receive notices, including the bar date notice. While the Debtor contests the claims asserted by the Claimants, they are still claims under the Bankruptcy Code. 11 U.S.C. § 101 (5) (right to payment whether, inter alia, reduced to judgment, unliquidated, disputed), and the holders are creditors. 11 U.S.C. § 101 (10) entitled to notices under Bankruptcy Rule 2002(a)(7). Yet the Debtor inexplicably did not provide notice of the bar date to the Claimants. Thus, the Claimants had good reason for their delay in filing the claim.
Good Faith. While I find that Claimants could have acted more responsively, I find no basis to conclude that they did not act in good faith. "[B]lamelessness on the part of the movant is no longer the standard of `excusable neglect.'" In re Herman's Sporting Goods, 166 B.R. 581, 584 (Bankr. D. N.J. 1994), citing Pioneer, 507 U.S. at 394, 113 S.Ct. at 1498. See also Cendant Corp., 311 F.3d at 302 ("Although Chase's lack of diligence in following the progress of the Court's proceedings is far from commendable, it did not amount to a lack of good faith."). Significantly, the Debtor has not alleged that Claimants acted in bad faith nor has any evidence probative of bad faith been presented. See In re Sacred Heart Hospital of Norristown, 186 B.R. 891, 897 (Bankr. E.D. Pa. 1995) (no evidence of conscious or tactical decision to file late claim which might raise issue of bad faith).
It is true that the Claimants failed to seek to enlarge the time for filing at the same time as they filed the proof of claim. Had they done so, their good faith would have been manifest. Herman's, 166 B.R. at 585 (good faith evidenced by diligently making motion to enlarge time promptly after filing late claim). However, there is no evidence that their delayed action was a stratagem or motivated by some improper purpose. "[A] careless mistake in professional judgment is not bad faith."In re Pappalardo, 210 B.R. 634, 647 (Bankr. S.D. Fla. 1997). See also Sacred Heart, supra; In re Earth Rock, Inc., 153 B.R. 61 (Bankr. D. Idaho 1993).
Delay. The Debtor claims prejudice by the late filing in that it will have to try the class action at this late date and the administration of the bankruptcy case will be delayed. I find these contentions hollow in the face of the evidence. There was a class action pending in the District Court when the bankruptcy case was filed. While it was Claimants' obligation to prosecute their claim by taking some action in this Court to get relief from stay or estimate the claim, the Debtor was aware of the pendency of the claims and ignored them. If the Debtor is prejudiced, it is partially of its own doing. While the proof of claim was filed but one month late, Debtor waited eight more months to object and bring this matter to a head. It cannot be heard to complain now that it is prejudiced by being required to try this case after its plan has been confirmed and the estate partially administered. The Third Circuit made the same observation in O'Brien when it recognized that the delay in Debtor's case would have been decreased had it reacted promptly, stating:
While I do not find Claimants' delayed filing of the Motion fatal to its cause today, I express no opinion on whether their failure to act in connection with the class nature of their claim may ultimately present a barrier to participation in this estate. As noted above, that issue is reserved for another day.
This Objection was one of eighteen it brought on March 25, 2003 alone, four months after plan confirmation, presumably as part of a claims objection program.
the detrimental impact of this delay is as much due to O'Brien's strategic decision to not object to or litigate Manus's claim until the fairly tight time frame between confirmation and the effective date of the Plan. Here, the delay factor in the excusable neglect inquiry should not be held to turn entirely on the urgency created by the debtor's time line.
188 F.3d at 130. Id.
Cf. Eagle Bus, 62 F.3d at 739 (criticizing the debtor for negotiating with the claimants for months after the bar date passed without raising the late claim issue). While I ascribe no similar motivation to Debtor since I have no basis to conclude why it did not seek a more timely resolution of its objection, it is nonetheless appropriate to evaluate its claims of prejudice in light of its own inaction.
More significantly, even though the plan has been confirmed and distributions begun, the relevant time period in consideration is not the delay from the bar date to the present, or even to when the Claimants' filed their Motion but the delay from the bar date to the filing of the late claim. In In re Orthopedic Bone Screw Products Liability Litigation, 246 F.3d 315, 325 (3d Cir. 2001), the Third Circuit observed that "consideration of the current effect of the delay on the proceedings would conflict with our holding that the length of the delay should be considered in absolute terms and not by reference to the import of intervening circumstances" Id. citing O'Brien, 188 F.3d at 130 (actual delay of two months only took on significance because of intervening effectiveness of plan). Here, the delay was minimal, and the filing occurred before any plan of reorganization was proposed.
Prejudice to the debtor. Prejudice occurs when allowance of a late claim would injure or damage the debtor. O'Brien, 188 F.3d at 126. Factors to consider in determining whether the debtor would be prejudiced by the late filing may include "the size of the claim with respect to the rest of the estate; whether allowing the late claim would have an adverse impact on the judicial administration of the case; whether the plan was filed or confirmed with knowledge of the existence of the claim; the disruptive effect that the late filing would have on the plan or upon the economic model upon which the plan was based; and whether allowing the claim would open the floodgates to other similar claims." Id.
Thus, prejudice has been found where a claim was filed after plan confirmation and a major portion of assets had been distributed, In re Drexel Burnham Lambert Group, 148 B.R. 1002, 1007 (S.D.N.Y. 1993), and where a plan had been formed, negotiated and confirmed, distribution had begun, and the late filed claim was in an amount much greater than anticipated by the debtor. Alexander's, 176 B.R. at 722. On the contrary, no prejudice has been found where a liquidating Chapter 11 plan was filed since the late claim merely reduced the percentage each creditor would receive from the total distribution, Sacred Heart, 186 B.R. at 897; Orthopedic Bone Screw Products, 246 F.3d at 323 (plan included a cap on damages, so no impact on debtor); where the plan was negotiated and approved after the debtor had notice of claims and there was no showing by the debtor that the size of the claim was large in relation to the estate, In re Eagle Bus, 62 F.3d at 738; and where a reserve fund was set aside for disputed claims, In re Wheeling-Pittsburgh Steel Corp., 128 B.R. 391, 393 (Bankr. W.D. Pa. 1991).
This contested matter is notable by the absence of any evidence that would address prejudice as described in the aforementioned cases. Notably as "Prejudice is not an imagined or hypothetical harm; a finding of prejudice should be a conclusion based on facts in evidence." O'Brien, 188 F.3d at 127. As the Third Circuit cautioned, Pioneer requires more detailed analysis of prejudice than whether the plan sets aside money to pay the claim, otherwise, "virtually all late filings would be condemned by this factor." Id. at 126. The Debtor's sole contention of prejudice is that it would be required to liquidate the class claim at this late date resulting in a delayed administration of the case. Debtor does not address (and certainly has provided no evidence of) the impact of the claim, if allowed. Neither party attempted to quantify the potential class claim which, arguably, if large enough, could impact anticipated creditor recoveries even though the information of record would indicate to the contrary. Perhaps that is the reason Debtor does not make that argument in response to the Claimants' contention that the Debtor is not prejudiced by the late filing because it was able to propose and confirm a reorganization plan subsequent to the filing of the Claimants' late claim.
Class 7, general unsecured claims, is to share in a fund of $5,000,000 ten days after the effective date of the plan. That distribution has been paid and no reserve was made for the Claimants' claim. The Disclosure Statement states that the unsecured claims total approximately $12,518,937.88 and that after the payment of the $5,000,000, an additional $16,923,613.44 would be available for distribution to unsecured creditors so that they would be paid in full. Fourth Amended Disclosure Statement at 11 (Doc. No. 314). If these liquidation values hold, the class claim would have to be allowed in an amount in excess of $9,000,000 to effect the otherwise 100% distribution to unsecured creditors.
Notably the prejudice alleged by the Debtor is not a consequence of the late filing but the timing of this contested matter. However, the claim was filed before the plan, and Debtor had every opportunity to take it into account in formulating the plan's terms. Eagle Bus, 62 F.3d at 737 (no prejudice as plan negotiated and approved after the debtor had notice of the claims); see Alexander's, Inc., 176 B.R. 715, 722 (Bankr. S.D.N.Y. 1995) (expectation of claim is one factor to consider in determining if debtor is prejudiced); Herman's, 166 B.R. at 584 ("Well before the negotiations debtor was fully aware of the existence of movant's claim and of the pending motion to extend the time to file the proof of claim. To the extent that Debtor assumed the court would decide the motion in its favor by excluding the lease rejection claim from negotiations, it did so at its own risk, and would have been a cause of any prejudice that might have occurred.").
While I do not find Claimants blameless for failing to prosecute their unliquidated claim by either an estimation proceeding or seeking relief from stay to continue the District Court Case, there was no impediment to the Debtor likewise taking the appropriate action to liquidate this claim. In the end, however, neither party argued that the potential size of the claim in relation to the Debtor's estate would or would not disrupt the distribution of assets. See Greyhound, 62 F.3d at 738 (debtor did not show that size of claims would disrupt distribution). Without regard to size of the claim, it is clearly provided for under the Debtor's confirmed plan which contemplates payment on account of disputed, liquidated or contingent claims to be paid when allowed. Thus, if allowed as an unsecured claim, Claimants would participate pro rata in a fund consisting of the proceeds of the liquidated assets. Fourth Amended Plan of Reorganization ¶¶ 3.7, 6.2 (Doc. No. 315). Since the plan is a liquidating plan, the consequence of allowance could be a reduction in the pro rata distribution, a consequence that courts have concluded is not a sufficient basis to bar a late filing as prejudicial.
CONCLUSION
In conclusion, I hold that the Claimants have demonstrated excusable neglect under Rule 9006(b), and therefore I will grant the Claimants' Motion to Enlarge the Time to File a Proof of Claim Nunc Pro Tunc. An Order consistent with this Memorandum Opinion shall be entered.
ORDER
AND NOW, this 25th day of July 2003, upon consideration of the Motion of Paula O'Gorman and Sarah Vuotto, Individually and on Behalf of Those Similarly Situated, to Enlarge the Time to File a Proof of Claim Nunc Pro Tunc (the "Motion"), after notice and hearing and for the reasons stated in the foregoing Memorandum Opinion;
It is hereby ORDERED that:
The Motion to Enlarge the Time to File a Proof of Claim Nunc Pro Tunc is GRANTED.