Opinion
Case No. 01-16034 (AJG) (Jointly Administered)
July 30, 2003
WEIL, GOTSHAL MANGES LLP, Attorneys for the Debtors, New York, New York.
Martin J. Bienenstock, Esq., Brian S. Rosen, Esq., Melanie Gray, Esq., Martin A. Sosland, Esq., SULLIVAN CROMWELL LLP, Attorneys for Stratum Group Energy Partners LP, New York, New York
Robinson B. Lacy, Esq., William L. Farris, Esq.
MEMORANDUM DECISION AND ORDER GRANTING STRATUM GROUP ENERGY PARTNERS LP'S MOTION TO PERMIT A LATE-FILED PROOF OF CLAIM BASED ON EXCUSABLE NEGLECT
The issues before the Court are whether Stratum Group Energy Partners LP ("Stratum") received adequate notice of Enron North America Corp.'s ("ENA") October 15, 2002 bar date and whether circumstances surrounding Stratum's filing of an untimely proof of claim on October 24, 2002 in ENA's bankruptcy case constitute excusable neglect. Upon consideration of Stratum's motion and supporting declarations to permit a late-filed proof of claim, ENA's objection to the motion, and arguments made at the motion hearing on April 25, 2003, the Court finds that Stratum received adequate notice of the bar date, however, its failure to file a timely proof of claim was the result of excusable neglect.
I. Jurisdiction
The Court has subject matter jurisdiction over this matter under sections 1334(b) and 157(a) of title 28 of the United States Code and under the July 10, 1984 "Standing Order of Referral of Cases to Bankruptcy Judges" of the United States District Court for the Southern District of New York (Ward, Acting C.J.). This is a core proceeding within the meaning of section 157(b)(2)(A), (B) and (O) of title 28 of the United States Code.
II. Background
A. General Procedural History
Commencing on December 2, 2001 (the "Petition Date"), Enron Corp. ("Enron"), ENA and certain of Enron's direct and indirect subsidiaries (collectively, the "Debtors") each filed for voluntary petition for relief under chapter 11 of title 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The Debtors' chapter 11 cases have been procedurally consolidated for administrative purposes. Since the Petition Date, the Debtors continue to manage their properties as debtors in possession and to operate their businesses pursuant to sections 1107 and 1108 of the Bankruptcy Code.
By an order dated August 1, 2002 (the "Bar Date Order"), this Court set October 15, 2002 as the bar date (the "Bar Date") by which proof of claims must be filed against the Debtors. On August 10, 2002, on behalf of ENA, Bankruptcy Services LLC ("BSL") stated in a sworn affidavit dated August 27, 2002 that it supervised the mailing of the notice of the commencement of the Debtors' chapter 11 cases (the "Notice of Commencement"), including the notice of the Bar Date ("the "Bar Date Notice") and forms and instructions for filing proofs of claim (collectively, the "Notice Package"), to potential creditors of the Debtors. BSL's affidavit provides that three of these Notice Packages were sent on August 10, 2002 by first class mail to two addresses listed for Stratum on ENA's schedules of assets and liabilities (the "Schedules"). The Schedules were filed on June 17, 2002. In addition, BSL's affidavit reflects that it sent Notice Packages to entities affiliated with Stratum, including Stratum Group Energy Capital L.P. and Stratum Group L.P. Aside from the mailing, the Debtors published the Bar Date Notice in several national and local newspapers in September 2002.
B. Stratum's Proof of Claim
On August 6, 1996, Stratum, an energy investment firm, entered into an option agreement (the "Agreement") with ENA to hedge an energy investment. Stratum closed out its position with ENA on November 29, 2001 (the "Close-Out Date"). Stratum's claim is for the return of funds deposited with ENA as security under the Agreement. Stratum alleges that the net amount ENA owed to Stratum as of the Close-Out Date is approximately $654,544.
Stratum's chief financial officer (the "CFO") asserts in a declaration executed March 28, 2003 that she only became aware of the Bar Date through a conversation with an employee of another financial services firm on October 24, 2002. The CFO further asserts that no one at Stratum was aware before such date that ENA's Bar Date had been set. Stratum filed its $654,544 proof of claim later that day with the Court (the "Proof of Claim"), that is, nine days after the Bar Date.
Stratum's CFO also maintains that she spoke to an employee with this Court in March 2002 about the action required to preserve a claim against ENA and was told that parties that had received earlier notices (that is, before March 2002) from the Court would receive a notice concerning filing a proof of claim. The CFO acknowledges in a reply declaration executed April 24, 2003 that Stratum received notices mailed prior to the March 2002 conversation with the Court employee. Otherwise, the CFO contends that Stratum did not receive the Notice of Commencement and the Bar Date Notice mailed in August 2002.
On October 8, 2002, EOTT Energy Partners, L.P. ("EOTT") filed a voluntary petition for relief under chapter 11 of title 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (Case No. 02-21730). An order establishing the bar date for the EOTT case was entered on October 9, 2002. Stratum's CFO declared that "Stratum did receive notice of the bar date in the EOTT . . . case and refiled its claim against ENA in that case with a letter alerting the [c]ourt that the claim was being filed a second time and the receipt of the EOTT notice might reflect administrative confusion concerning ENA's liability to Stratum." In other words, although Stratum received the EOTT bar date notice, Stratum alerted the bankruptcy court in the EOTT case that there might be confusion concerning ENA's liability to Stratum and it appears that Stratum was still awaiting for ENA's Bar Date Notice.
Stratum also contends that while ENA's Schedules do not appear to show Stratum's claim for return of its security deposit, the Schedules do reflect a claim for a portion of the prepetition interest ENA owed Stratum on the deposit. Also, Stratum asserts that ENA's amended statement of financial affairs reflects that ENA received a portion of Stratum's deposit, that is, in the amount of $300,000 that was paid to ENA within one year before the Petition Date. On March 31, 2003, Stratum filed a motion for an order to enlarge its time to file the Proof of Claim by nine days (the "Motion"), that is, to October 24, 2002, asserting that it failed to file the claim by the October 15, 2002 Bar Date because it did not receive the Bar Date Notice and due to excusable neglect pursuant to Rule 9006(b)(1) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rule"). In response, ENA filed an objection to the Motion on April 22, 2003, maintaining that Stratum received adequate notice of the Bar Date and it failed to meet its burden of establishing excusable neglect.
III. Discussion
A. Adequacy of Bar Date Notice
A chief purpose of bankruptcy law is to secure within a limited period a prompt and effectual administration and settlement of the debtor's estate. In furtherance of this purpose, Bankruptcy Rule 3003(c) mandates that a claimant file a timely proof of claim against a debtor's estate in chapter 11 bankruptcy in order to participate in the debtor's reorganization. In particular, Bankruptcy Rule 3003(c)(3) provides that the claimant must file the claim prior to any bar date established by order of a bankruptcy court. Such a "bar [date] order in a chapter 11 case serves the important purpose of enabling the parties in interest to ascertain with reasonable promptness the identity of those making claims against the estate and the general amount of the claims, a necessary step in achieving the goal of successful reorganization." In re Best Products Co., 140 B.R. 353, 357 (Bankr.S.D.N.Y. 1992). After the bar date expires, "the claimant cannot participate in the reorganization unless he [or she] establishes sufficient grounds for the failure to file a proof of claim." Id.
Before a debtor can obtain a discharge of a claim in bankruptcy, however, the Due Process Clause of the Fifth Amendment dictates that a debtor's creditors receive notice of the debtor's bankruptcy case and applicable bar date so that creditors have an opportunity to make any claims they may have against the debtor's estate. See generally In re Drexel Burnham Lambert Group Inc., 151 B.R. 674, 679 (Bankr.S.D.N.Y. 1993). In particular, due process requires that a known creditor, such as Stratum, must be afforded notice reasonably calculated, under all the circumstances, to apprise it of the pendency of the bar date. See Mullane v. Cent. Hanover Bank Trust Co., 339 U.S. 306, 314 (1950). While not every first-class mailed letter will be received by the addressee, the Supreme Court has "repeatedly recognized that mail service is an inexpensive and efficient mechanism that is reasonably calculated to provide actual notice." Tulsa Prof'l Collection Servs., Inc. v. Pope, 485 U.S. 478, 490 (1982) (emphasis added). In view of the foregoing, the appropriate determination as to adequacy of the Bar Date Notice is whether the Debtors properly mailed the notice to Stratum.
"The law presumes that a properly addressed, properly mailed item is received by the addressee." In re Keene Corp., 188 B.R. 903, 910 (Bankr.S.D.N.Y. 1995). ENA has established this presumption with respect to Stratum by submitting BSL's sworn affidavit, which shows that the Notice Package, which included the Bar Date Notice, was properly addressed to Stratum and properly sent by first class mail on August 10, 2002. This shifts the burden to Stratum to rebut the presumption of receipt of the notice. Id. Stratum CFO's self-serving declaration asserting non-receipt of the Notice Package is insufficient to rebut this presumption of receipt. See In re. R.H. Macy Co., 161 B.R. 355, 359 (Bankr.S.D.N.Y. 1993). The Court finds, therefore, that Stratum is deemed to have received the Bar Date Notice.
Since adequate notice of the Bar Date was received, Stratum's only recourse is to show that its failure to timely file its Proof of Claim was due to excusable neglect.
B. Excusable Neglect Framework
Bankruptcy Rule 9006(b)(1) provides that a bankruptcy court in its discretion may accept a late-filed proof of claim where a claimant establishes "excusable neglect." The burden is on the claimant to prove that he or she did not timely file his or her claim because of excusable neglect. In re Andover Togs, Inc., 231 B.R. 521, 549 (Bankr.S.D.N.Y. 1999).
The seminal case interpreting the "excusable neglect" language of Bankruptcy Rule 9006(b)(1) is Pioneer Inv. Servs. Co. v. Brunswick Associates L.P., 507 U.S. 380 (1993). In permitting a creditor's late filing under Bankruptcy Rule 9006(b)(1), the Supreme Court explained that Congress, "by empowering the courts to accept late filings `where the failure to act was the result of excusable neglect,' plainly contemplated that courts would be permitted, where appropriate, to accept late filings caused by inadvertence, mistake, or carelessness, as well as by intervening circumstances beyond the party's control." 507 U.S. at 388 (quoting, in part, Bankruptcy Rule 9006(b)(1)). The Supreme Court further clarified that whether a claimant's neglect of a deadline is excusable is an equitable determination, taking account of all the relevant circumstances surrounding the claimant's omission. See id. at 395. These equitable considerations include (1) "the danger of prejudice to the debtor," (2) "the length of the delay and its potential impact on judicial proceedings," (3) "the reason for the delay, including whether it was within the reasonable control of the movant," and (4) "whether the movant acted in good faith."
The relative weight, however, to be accorded to the factors identified in Pioneer requires recognizing that not all factors need to favor the moving party. See Keene, 188 B.R. at 909. As one bankruptcy court concluded, "[n]o single circumstance controls, nor is a court to simply proceed down a checklist ticking off traits. Instead, courts are to look for a synergy of several factors that conspire to push the analysis one way or the other." In re 50-Off Stores, Inc., 220 B.R. 897, 901 (Bankr.W.D.Tex. 1998).
C. Pioneer's Equitable Factors
With Pioneer's four equitable factors in mind, the Court turns to the facts of this case to determine if Stratum's failure to file a timely Proof of Claim was caused by excusable neglect.
1. Danger of Prejudice to Debtors
Stratum asserts that its delay in filing its Proof of Claim is minimal in the context of the Debtors' bankruptcy cases and will not prejudice the Debtors or the course of their proceedings. ENA argues, inter alia, that the late-filed claim against it in this procedurally consolidated case could directly affect the accuracy of other Debtors' liabilities. Also, ENA claims that even if a small percentage of creditors are permitted to file proofs of claim after the Bar Date, an inaccurate picture of the Debtors liabilities will be created thereby impeding the proposal of a plan of reorganization. ENA further asserts that if the Debtors are continually subjected to receiving and evaluating late-filed claims, the Debtors will have to incur additional expense and time analyzing these claims that would delay any proposed plan of reorganization. The bankruptcy court in In re Keene Corp., 188 B.R. 903 (Bankr.S.D.N.Y. 1995), noted that while Pioneer did not define "prejudice," the term goes beyond concern with harm to the debtor and also considers "the adverse impact that a late claim may have on the judicial administration of the case." Keene, 188 B.R. at 910. The Keene court clarified that, subsequent cases have weighed a number of considerations, including (1) "the size of the late claim in relation to the estate," (2) "whether a disclosure statement or plan has been filed or confirmed with knowledge of the existence of the claim," and (3) "the disruptive effect that the late filing would have on a plan close to completion or upon the economic model upon which the plan was formulated and negotiated." Id.
While Debtors' liabilities will have to be reevaluated if the late Proof of Claim is allowed, the Court finds there is no significant prejudice applicable here. In particular, the Court notes that the claim is not substantial in relation to the rest of the claims filed against ENA's bankruptcy estate, no disclosure statement or plan of reorganization had been filed at the time the claim was filed on October 24, 2002 (that is, the Debtors' disclosure statement and plan of reorganization were filed on July 11, 2003), and the claim will not have a disruptive effect upon the proposed plan. Furthermore, the circumstances surrounding Stratum's claim are sufficiently unique to counter the Debtors' concerns of possibly opening up the floodgates to other late-filed claims. The Court, therefore, finds that this Pioneer factor also weighs in favor of Stratum.
2. Length of Delay and its Potential Impact on Judicial Proceedings
Stratum argues that allowing the Proof of Claim nine days after the Bar Date is de minimis given that the Debtors are only in the early stages of their claims review and reconciliation process.
ENA maintains that the Debtors rely on the Bar Date to provide a final deadline by which an accurate portrayal of their liabilities may be made for the purpose of proposing a plan of reorganization that will eventually lead to payment of claims under the plan. ENA, therefore, asserts that if creditors are consistently permitted, without meeting the standards set in Pioneer, to file claims after the Bar Date, the accuracy of the Debtors' liabilities will be skewed, further delaying the claims process.
Since the claims review and reconciliation process in the Debtors' bankruptcy proceedings are still in the initial stages, the Court finds that the nine-day delay in filing the Proof of Claim will not drastically impact the Debtors' judicial proceedings. Therefore, the length of delay factor also weighs in favor of Stratum.
3. Reason for Delay, Including Whether it was Within Reasonable Control of Movant
Stratum contends that its reason for the nine-day delay in filing the Proof of Claim was because it did not receive notice of the Bar Date and, when it did become aware of the Bar Date on October 24, 2002, it immediately filed the claim that same day.
ENA counters that the Debtors provided Stratum with adequate notice of the Bar Date. Furthermore, ENA argues that it was within Stratum's reasonable control to file the Proof of Claim on a timely basis.
As noted, Stratum was provided with adequate notice. Also, beyond Stratum CFO's mere denial of receipt of the Bar Date Notice, Stratum did not offer any evidence to rebut the presumption of receipt. Stratum, for instance, could have offered evidence that it had and followed a particular internal procedure for recording receipt of mail such as the Bar Date Notice and its records reflected that it did not receive the notice. Since Stratum is presumed to have received the Bar Date Notice, and although, as referenced below, the EOTT notice may been the source of some confusion, the Court finds that it was within Stratum's reasonable control to file a timely Proof of Claim. Thus, the reason for the delay factor weighs in favor of the ENA.
4. Whether Movant Acted in Good Faith
There is no indication in the instant record that Stratum acted in any manner other than in good faith. First, the Court notes that Stratum's CFO made a good faith effort in March 2002, which ENA does not dispute, to inquire with the Court about the Bar Date in order to preserve its Proof of Claim against ENA. Also, although Stratum received the EOTT bar date notice, the Court notes that Stratum sent a letter to the bankruptcy court in the EOTT case expressing concern that there might be some administrative confusion regarding ENA's liability to Stratum. The Court, therefore, finds that the March 2002 inquiry and October 2002 EOTT letter reflect that Stratum had a good faith intention to file the Proof of Claim in a timely manner. Accordingly, the good faith factor also favors Stratum.
IV. Conclusion
The Court concludes that while the reason of delay factor weighs in favors ENA, the remaining Pioneer factors, that is, the danger of prejudice to the debtor, the length of delay and its impact on the judicial proceedings, and movant's good faith, all weigh strongly in favor of permitting Stratum's late-filed Proof of Claim based on excusable neglect.
Therefore, for the reasons set forth herein, it is hereby: ORDERED, that Stratum's Motion to enlarge the time to file the Proof of Claim to October 24, 2002 is granted.
ORDER (1) GRANTING SHELL CHEMICAL L.P.'S MOTION TO ALLOW ADMINISTRATIVE CLAIMS FOR THE CONVERSION OF NATURAL GASOLINE AND ETHANE; (2) SETTING INTEREST TERMS; AND (3) DENYING REQUEST TO ALTER COURT'S PREVIOUSLY SET TIMING FOR PAYMENT OF ADMINISTRATIVE CLAIMOn October 11, 2002, Shell Chemical L.P. ("Shell") filed an Amended Motion to Allow and Pay Administrative Claims for Conversion of Natural Gasoline and Ethane (the "Motion") against Enron Gas Liquids, Inc. ("EGLI"). On February 6, 2003, the Debtors filed an Objection to the relief requested in the Motion. On February 10, 2003, the Official Committee of Unsecured Creditors appointed to serve in the Debtors' case, filed a joinder to the Debtors' objection. An evidentiary hearing on this matter was conducted on February 13, 2003 (the "February 13, 2003 Hearing").
On March 17, 2003, this Court issued a Memorandum Decision (the "Memorandum Decision") Concerning Request for Administrative Claim in which the Court granted administrative priority to Shell for its claims based on the conversion of certain natural gas and ethane products by EGLI. The Court, however, directed that payment of these administrative claims should await confirmation of EGLI's plan of reorganization. On March 28, 2003, pursuant to the Court's direction to file a proposed order on notice, Shell filed notice of a proposed order. On April 1, 2003, EGLI filed a response opposing entry of the proposed order. The dispute concerning entry of the proposed order centers on the period over which interest accrues and the applicable interest rate.
Prior to entry of an order concerning the Court's ruling, Shell filed a Motion, dated March 28, 2003 (the "Reconsideration Motion"), seeking reargument concerning the Memorandum Decision and requesting, specifically, that the Court reconsider that portion of its ruling directing that Shell's administrative claim not be paid until after this Court confirms EGLI's plan of reorganization. EGLI filed a response, dated May 2, 2003, to Shell's Reconsideration Motion, arguing that the Court properly determined the timing for the payment of the administrative claim. The Official Committee of Unsecured Creditors filed a Joinder, dated May 28, 2003, to the Reconsideration Response. A hearing concerning both the Reconsideration Motion and the issues surrounding interest was conducted on June 3, 2003 (the "June 3, 2003 Hearing").
The Court, having considered the Motion, the evidence, the February 13, 2003 Hearing, the arguments of counsel and the pleadings on file with the Court and having rendered the Memorandum Decision dated March 17, 2003, and further having considered the Reconsideration Motion, the responses thereto, and the June 3, 2003 Hearing, it is hereby
ORDERED that Shell is entitled to recover from EGLI $1,602,300.00 for conversion of its natural gasoline and $590,199.57 for conversion of its ethane; and it is further
ORDERED that Shell's conversion claim for natural gasoline shall accrue interest at 10% per annum from March 12, 2002 until March 17, 2003 and that Shell's conversion claim for ethane shall accrue interest at 10% per annum from April 12, 2002 until March 17, 2003; and it is further
ORDERED that EGLI is entitled to an offset from the amount due Shell for costs and fees incurred by Shell in connection with EGLI's storage of its natural gasoline, including the accrual of interest at the rate of 10% per annum from the date due for each respective payment pursuant to the contract until March 17, 2003; and it is further
ORDERED that EGLI is entitled to an offset of the amount due Shell for costs and fees incurred by Shell in connection with EGLI's storage of its ethane, including the accrual of interest at the rate of 10% per annum from the date due for each respective payment pursuant to the contract until March 17, 2003; and it is further
ORDERED that Shell's claims for conversion of its natural gasoline and ethane be allowed as Chapter 11 administrative claims with administrative expense priorities in accordance with 11 U.S.C. § 503(b)(1)(A); and it is further
ORDERED that Shell's administrative claims, without further accrual of interest, awarded by this Order shall be paid at confirmation of a plan of reorganization or liquidation of EGLI, and in accordance with such plan, or at such other time as this Court shall order for good cause shown.