Opinion
Bankruptcy No. 02-15015DWS.
June 20, 2003
Camilc Spinale, Esquire, CIARDI, MASCHMEYER KARALIS, P.C., Philadelphia, Pa, Counsel for Debtor.
Robert M. Greenbaum, Esquire, SAUL, EWING, REMICK SAUL LLP, Philadelphia, Pa, Counsel for Paxar Corp.
MEMORANDUM OPINION
Before the Court are (1) the Debtor's Objection to proofs of claim filed by Paxar Corporation ("Paxar") in the amount of $156,837.37 ("Claim One"), Exhibit C-1, and $23,829.30 ("Claim Two"), Exhibit C-2, on the grounds that they were filed after the claim bar date (the "Objection"); and (2) the Motion of Paxar Corporation for an Order Permitting the Late Filing of Claim of Paxar Corporation ("Paxar Motion"). The Claimant argues that the late filing should be permitted under the excusable neglect standard enunciated by the United States Supreme Court inPioneer Inv. Services v. Brunswick Assocs. Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489 (1993). For the following reasons, I agree as to Claim One but not Claim Two. BACKGROUND
I have continued the Objection insofar as it contests the amount of the claim pending resolution of this contested matter.
The facts are not disputed. Paxar, a company producing labeling products and accompanying services, did business with Spring Ford Industries ("Debtor") beginning in March 2000 and ending in April 2002. Notably Paxar has offices and manufacturing locations throughout the country, including in New York, Ohio, North Carolina and Virginia.
Debtor filed for relief under Chapter 11 on April 2, 2002, and a bar date order was entered by Order of this Court. Doc. No. 76. The Order established July 2, 2002 as the bar date for filing of proofs of claim and required Debtor to inform creditors of the proof of claim bar date no later than May 29, 2002. Paxar admits that Debtor sent timely notice of the bar date (the "Notice") to it at its plant in Sayre, Pennsylvania ("Sayre Facility").
Claim One. According to the testimony of Paxar's representative Paula Henry, customer service, sales and correspondence were handled by the Sayre Facility while payments for goods were directed to a post office box in Atlanta. The preparation of proofs of claim had historically been handled by the White Plains, New York offices (White Plains Facility"). Consistent with that delegation of duty, the Notice was forwarded from Sayre to White Plains. However, during this period Paxar was relocating certain corporate and accounting offices from the White Plains Facility to Miamisburg, Ohio ("Miamisburg Facility"), and at some point the Notice was forwarded to Miamisburg, which had been delegated the proof of claim function, for action. Henry testified, without precision, that the Notice was received in Miamisburg at the end of July or beginning of August. However, prior to the Notice being sent, Paxar was aware of Spring Ford's Chapter 11 bankruptcy case and indeed Henry had prepared a proof of Claim One which is dated July 1, 2002 and signed by Russell K. Schneider, Director of Credit and Collections before receipt of the Notice. Exhibit C-1. Henry's only explanation for the failure to mail Claim One contemporaneously with its preparation was that the Notice had not yet been received at the Miamisburg Facility. Claim One was received by the Court on August 6, 2002 attached to a transmittal letter dated August 1 in which Henry noted that Paxar had not been receiving notifications properly and directed future correspondence to the Miamisburg Facility. Exhibit C-3.
Henry testimony is notably vague about the dates each Facility received the Notice. Moreover, her use of the word "discovered" leaves open the possibility that the Notice was received in Miamisburg some time before it was discovered and acted upon.
Henry testified that while she was responsible for filing proofs of claim and mailing those claims, they had to be approved at several levels of the company and by her manager Mr. Schneider before they were sent for filing.
Paxar claims that the relocation of the proof of claim preparation function to Miamisburg was responsible for its failure to timely file Claim One since the Notice was internally misdirected to the White Plains Facility. This operational problem it contends constitutes "excusable neglect" so as to allow a late filing.
There is no indication from the evidence that the Debtor was in any way responsible for the misdirected Notice. The Debtor sent the Notice to the office that handled correspondence and customer service, a more logical choice than the lock box accepting payments. A request for notices under Bankruptcy Rule 2002 had never been filed, and even had it been, it would have had the wrong location since Paxar was sending all such notices to White Plains at the time. When questioned, Henry acknowledged that had the Notice been sent to another Ohio plant near Miamisberg, it too would have been sent to White Plains. Thus, to the extent that Paxar argues that Debtor bears some responsibility for its failure to address the Notice in a timely manner by mailing it to the Sayre Facility, that contention is misplaced. In Roeder v. Internal Revenue Service (In re Benny's Leasing), 166 B.R. 823, 825 (Bankr. W.D. Pa. 1993), the Internal Revenue Service claimed that it was improper to serve notice of a bar date at its Service Center but rather it should have been sent to a specific department. The Court held that nothing required the debtor to send the notice to specific department but rather the IRS had the responsibility of ensuring it reached the right department. The Court found the IRS's lack of awareness of the bar date to constitute an internal breakdown in its procedures for the forwarding of notices within the IRS, a sophisticated creditor which files many proofs of claims, and not a defect in the notice it was provided.
Claim Two. Claim Two presents a different factual history from Claim One. Henry did not file Claim Two and testified that she had no knowledge of the circumstances leading to its filing. She stated that there was no coordination in the filing of Claims One and Two. The claim represents a debt asserted by U.S. Label, a company purchased by Paxar in 2001 and operating as a separate division of Paxar during the time period in question. Paxar did not have access to U.S. Label's outstanding accounts receivable, and presumably for that reason the claim was not prepared by Henry. Rather the form is signed by the Controller of U.S. Label's Greensboro operation and dated August 9, 2002. Exhibit C-2. It was received by the clerk on August 13, 2002. Id. Henry testified that she has no idea how U.S. Label received the Notice.
After filing its late proofs of claim, Paxar took no action to seek an enlargement of the bar date pursuant to Rule 9006(b), and the matter sat until the Objection was filed. At that point, the Paxar Motion was filed. During this period, Spring Ford filed its final version of a plan of reorganization and accompanying disclosure statement which was transmitted to creditors on October 7, 2002. Doc. No. 327. The plan, which was confirmed by Order dated November 26, 2002, Doc. No. 419, provides that unsecured creditors will share pro rata in a fund comprised of proceeds of the liquidation of its assets. The Fourth Amended Disclosure Statement, Doc. No. 314, discloses assets with a potential liquidation value of $23,173,613.44 and provides for an initial pro rata distribution of $5,000,000 on the plan effective date to the $12,518,937.88 of unsecured claims. That distribution has been calculated to include the Paxar claims and their pro rata share has been reserved. The Disclosure Statement states that based on the projected proceeds of the liquidation net of costs and other administrative claims, "creditors should receive all their money when the liquidation is complete." Disclosure Statement at 11.
DISCUSSION
In Pioneer Inv. Services v. Brunswick Assocs. Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489 (1993), the United States Supreme Court held that the inadvertent, mistaken or careless failure to file a proof of claim by the bar date can constitute "excusable neglect" within the meaning of Rule 9006(b)(1). Neglect "encompasses both simple, faultless omissions to act and, more commonly, omissions caused by carelessness." Id. at 388. 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. The burden of proof rests with the petitioner claiming excusable neglect to justify the allowance of a late proof of claim. See Jones v. Chemetron Corp., 212 F.3d 199, 205 (3d Cir. 2000).
b) Enlargement.
"(1) In General. Except as provided in paragraphs (2) and (3) of this subdivision, 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.
The determination of whether neglect is "excusable" requires consideration of the totality of the circumstances. Welch Forbes, Inc v. Cendant Corporation (In re Cendant Corporation Prides Litigation), 233 F.3d 188, 196 (3d Cir. 2000). WhileCendant involved the late filing of claims to participate in a class action settlement and did not examine the justifications for the late filings, it elucidated "several examples" that would suffice to warrant a late filing: "the failure of claimants to receive notice, illness, misrouted mail, intervening company name changes, or short internal mail systems delays." Id. at 197. I turn now to each late filed claim to apply the foregoing standards.
A. Claim One
Whether or not the reason for the missed bar deadline is neglect forms a threshold question in finding excusable neglect. Paxar, apparently aware of Spring Ford's bankruptcy proceedings, prepared the proof of Claim One on July 1 according to the date on the document but held on to the document for one month pending receipt of the bar date notice. There is no evidence that Paxar deliberately withheld filing the proof of claim and no affirmative duty exists to file a proof of claim before the bar date. Rather I find credible the testimony that Paxar assumed that the bar date was in the future and that it would have ample time to submit the claim once the Notice was received. Given the transfer of business and accounting functions of which Paxar was aware, the failure to file the claim when it was prepared reflects poor judgment and carelessness that qualifies as neglect. Whether that neglect is excusable requires examination of the aforementioned Pioneer standards.
I begin with an analysis of the impact of this late filing on the debtor, its reorganization and the estate. Prejudice, probably the most important factor for disallowing a late filing, is not present here. See In re Sacred Heart Hospital of Norristown, 186 B.R. 891, 895 (Bankr. E.D. Pa. 1995). As noted above, plan of reorganization was submitted to creditors after the claims were filed and appears to have been included in the calculus of expected dividends disclosed to creditors. With knowledge of the claims' existence, the Debtor reserved funds from the initial distribution for the claims if allowed. Thus, granting Paxar's Motion will not impact the distributions already made nor have an adverse impact on judicial proceedings which are essentially concluded. The only prejudice alleged is the resulting reduced creditor recoveries in this pot plan. If a simple redistribution of money between creditors created prejudice then prejudice would exist in any case where the debtor has proposed a pot plan. Manus Corp. v. Official Committee of Creditors (In re O'Brien Environmental Energy, Inc.), 188 F.3d 116, 126 (3d Cir. 1999) ( citing Manousoff v. Macy's Northeast, Inc. (In re Macy Co., Inc.), 166 B.R. 799, 802 (Bankr. S.D.N.Y. 1994) for holding that depletion of resources otherwise available for timely filed claims is not prejudice). I find that the notion of prejudice is not that broad. Most significantly, it appears unlikely that creditor recoveries will be impacted or if impacted, only immaterially. The Disclosure Statement states that there are in excess of $12 million of claims. Paxar's claims represent less than .017% of the total claims which in any event, the Debtor stated would likely be paid in full given the value of the assets to be liquidated. Given the absence of any prejudice from the late filing, the justification for the delay need not be as strong.
The prejudice analysis would also apply to the late filing of Claim Two.
Paxar's explanation for filing the tardy Claim One is the transfer of its accounting functions, including the filing of proofs of claim in bankruptcy cases, from one location to another. As noted above, the Third Circuit in Cendant has identified misrouted mail as one of the circumstances that may justify late filing. Moreover, courts have found that office relocation and the accompanying disruption can be considered excusable neglect, albeit in combination with other factors contributing to the tardiness. In In re Schlosser, 100 B.R. 348 (Bankr. S.D. Ohio 1989), a bank was in the process of combining operations of two offices when it received notice of an objection to a proof of claim. In addition to the office consolidation, the employee that had been served with the original objection resigned at around the same time as consolidation and as the service of the objection. Applying the more rigorous pre-Pioneer standard, the court concluded that the combination of both of these occurrences at the same time constituted excusable neglect for an untimely filing although noting that it was "a very close case." Id. at 350. See Kadlecek v. Ferguson (In re Ferguson), 210 B.R. 785, 788 (Bankr. N.D. Ill. 1997) (excusable neglect under F.R.Bankr.P. 9006(b) when a law office was forced to relocate files after a flood and where the attorney's paralegal contemporaneously left the firm without finishing a great deal of work and the attorney did not realize that the service had not been performed); In re William B. Kessler, Inc., 29 B.R. 358, 359 (Bankr. S.D.N.Y. 1983) (excusable neglect found where confusion and relocation of a law office as well as the serious illness of the partner in charge at the time responsible for the late filing of an appeal). See also In re Crazy Eddie Sec. Litig., 906 F. Supp. 840, 847 (E.D.N.Y. 1995) (excusable neglect under Pioneer standard where banks in the process of merging their operations failed to file a proof of claim in a class action settlement until three weeks after the bar date). Conversely in Harlow Fay, Inc. v. Fed. Land Bank of St. Louis, 993 F.2d 1351, 1352 (8th Cir. 1993), the Court of Appeals held that moving law offices and a reduction in staff due to financial problems did not constitute excusable neglect for debtor's untimely filing of an appeal brief. In so concluding, it referred to the statement in Pioneer that "we give little weight to the fact that counsel was experiencing upheaval in his law practice at the time of the bar date." Id. at 1353 ( citing Pioneer, 507 U.S. at 398, 113 S.Ct. at 1499).
The court grappled with the concept of excusable neglect in the context of FED.R.CIV.P. 60(b). Presently excusable neglect embodied in rule 60(b) would be defined in the same manner as excusable neglect under Bankruptcy Rule 9006(b). See Manus Corp. v. NRG Energy, Inc. (In re O'Brien Envtl. Engery Inc.), 188 F.3d 116, 126 (3d Cir. 1999).
The persuasiveness of this opinion is also buoyed by the fact that in a post-Pioneer case, the District Court for the Northern District of New York in analyzing Schlosser did not conclude that a different decision should have been reached but instead distinguished the case based on the fact that a much longer period of time passed between the alleged excusable neglect and business reorganization. See In re O.W. Hubbell Sons, Inc., 180 B.R. 31, 35 (N.D.N.Y. 1995).
In Harlow Fay circumstances might have affected the court's decision. The attorney had already filed two requests for time extensions and had those requests granted. He then filed a third request, which was never ruled upon, and then a fourth which was also never ruled upon. Even if the fourth extension had been granted he still would have missed that deadline by a couple of days. 993 F.2d at 1352.
Applying these cases to the instant facts, the outcome presents a close question. While the Third Circuit in Cendant appears to recognize misrouted mail and short internal mail delays as justifying late filing, the Supreme Court cautions that office upheaval does not. The facts here present a variant of both situations. Paxar was involved in an internal reorganization of its functions and as such the Notice was forwarded initially to the wrong office, i.e., White Plains where proofs of claim had been handled previously. At some point, not specified in the record, White Plains which was transferring other functions to Miamisberg, forwarded the Notice as well. Thus, while most of the delay was attributable to misrouted mail and a corporate reorganization, some part of it is attributable to the internal failure to transmit the Notice directly to the correct office. Whether that delay resulted from oversight or confusion as to whom would be responsible for the filing is not clear. However, the brevity of the delay, one month, is a factor that mitigates against a harsh result.
Inquiry in this case cannot end at the reasons for the delay but must also give consideration to the promptness of the action taken once the missed deadline was discovered. As I noted in In re Mezvinsky, 2001 WL 1403525 at *5 (Bankr. E.D. Pa. 2001), "absent some evidence that he [the lawyer] made immediate and full efforts to discover the extent of the computer problem and correct it, and acted promptly to file his notice of appeal . . ." excusable neglect would not have been found. Similarly inIn re Hall the court positively noted the prompt action taken by counsel once they realized a filing deadline had been missed. 259 B.R. 680, 682 (Bankr. N.D. Ind. 2001). See also In re William B. Kessler, Inc., 29 B.R. 358, 359 (Bankr. S.D.N.Y. 1983) (excusable neglect under former Bankruptcy Rule 802(c) where counsel acted promptly after missing deadline for appeal). Henry testified that she received the Notice late July or early August. Her letter of transmittal forwarding the proof of claim to the Court is dated August 1, 2003. She acted promptly under the circumstances. Indeed since Claim One was already prepared, anything less than such immediate filing would have been inexcusable.
Based on my review of the foregoing cases and the overriding admonition that all circumstances must be considered in order to fashion an equitable decision, I will allow the late filing of Claim One. In so concluding, I will note that the outcome would have been different had the absence of prejudice not been so compelling.
B. Claim Two
As noted above, Paxar presented no testimony concerning the circumstances surrounding the late filing of Claim Two. Henry expressed no personal knowledge of its filing and apparently made no inquiry. She did not explain why the Greensboro division filed its own claims. Thus, all that is known about Claim Two is that it was dated August 9 and filed on August 13. There is no basis to conclude that the reallocation of functions Henry described affected the preparation of Claim two. As already noted the burden lies with Paxar as the moving party to prove excusable neglect. Based on this record, Paxar cannot sustain its burden. While the delay is also a short one and there is no prejudice arising from it, the failure of Paxar to provide any explanation for the late filing merits disallowance of Claim Two.
An Order consistent with this opinion will be entered.
ORDER
AND NOW, this 20th day of June 2003, upon consideration of (1) the Debtor's Objection to proofs of claim filed by Paxar Corporation in the amount of $156,837.37 ("Claim One"), Exhibit C-1, and $23,829.30 ("Claim Two"), Exhibit C-2, on the grounds that they were filed after the claim bar date; and (2) the Motion of Paxar Corporation for an Order Permitting the Late Filing of Claim of Paxar Corporation ("Paxar Motion"), after notice and hearing, and for the reasons stated in the accompanying Memorandum Opinion;
It is hereby ORDERED that:
1. The Debtor's Objection is GRANTED in Part. Paxar's Claim One shall be allowed but Claim Two is disallowed; and
2. Paxar's Motion is GRANTED as to Claim One and DENIED as to Claim Two.