Opinion
Case Nos. 01-16034 (AJG) Jointly Administered
April 8, 2003
Steven T. Loden, Esq., of Counsel, WEIL, GOTSHAL MANGES LLP, Attorneys for Debtors.
Deborah M. Buell, Esq., of Counsel, CLEARY, GOTTLIEB, STEEN HAMILTON, Attorneys for P.P.C. Industries, Inc.
MEMORANDUM DECISION AND ORDER DENYING P.P.C. INDUSTRIES' MOTION TO PERMIT A LATE-FILED PROOF OF CLAIM DUE TO EXCUSABLE NEGLECT
The issue before the Court is whether the circumstances surrounding the filing of an untimely proof of claim constitute excusable neglect under the standard enunciated in Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380 (1993). Upon consideration of the submissions of P.P.C. Industries, Inc. (hereinafter "PPC") to permit a late filed proof of claim and Enron North America Corp.'s objection to PPC's original motion, the Court finds that PPC's failure to file a timely proof of claim was not the result of excusable neglect.
I. Jurisdiction
The Court has subject matter jurisdiction of this matter under 28 U.S.C. § 1334(b) and 157(a) and the "Standing Order of Referral of Cases to Bankruptcy Judges" of the United States District Court, dated July 10, 1984 (Ward, Acting C.J.). This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A),(B) and (O).
II. General Background
On December 2, 2001 (the "Petition Date"), Enron North America Corp. ("ENAC") and certain of its affiliates (together with ENAC, the "Debtors" or "Enron") filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The Debtors continue to operate their businesses as debtors-in-possession pursuant to § 1107(a) and 1108 of chapter 11, title 11 of the United States Code (the "Bankruptcy Code").
Pursuant to section 1102 of the Bankruptcy Code, on December 12, 2001, the United States Trustee for the Southern District of New York (the "United States Trustee") appointed an official committee of unsecured creditors (the "Creditor's Committee") in the Debtors' chapter 11 cases. On March 27, 2002, the United States Trustee appointed an Employment-Related Issues Committee.
By order dated on August 1, 2002 (the "Bar Date Order"), this Court set October 15, 2002 (the "Bar Date") as the deadline by which proofs of claim must be filed against the Debtors. On August 10, 2002, notice of the Bar Date ("Bar Date Notice") was sent to potential creditors of the Debtors.
III. Background
On November 9, 2001, PPC entered into a written contract with ENAC, whereby PPC purchased a "cap" on twelve million (12,000,000) pounds of polyethylene resin for a price $0.01 per pound (the "Contract"). Under the Contract, the strike price is $0.36 per pound, and the Contract term is for the period January 1, 2002 through December 31, 2002. Under the Contract, PPC protected one (1,000,000) pounds of resin per month against the "cap" of $0.36 per pound. In other words, if the price of resin ever exceeded $0.36 per pound in 2002, as determined by a mutually agreed upon index, Enron owed to PPC the difference between the index price and the strike price. For any period the index price is below or equal to $0.36 per pound, then no payment is due from Enron. Settlements were to be calculated each calendar month. PPC asserts a claim against ENAC of approximately $165,000.
Prior to the Bar Date, counsel (other than counsel representing PPC in this motion) was retained to file a Proof of Claim on behalf of PPC in the above-captioned cases ("Proof of Claim Counsel"). As a result of an error by Proof of Claim Counsel, a proof of claim was not filed by or on behalf of PPC by the Bar Date. On January 29, 2003 shortly after becoming aware of the error, Proof of Claim Counsel filed a proof of claim. Other than mere oversight, there is no indication in the instant record of the circumstances surrounding the untimely claim.
IV. Legal Authority
A. Proofs of Claim, Bar Date Orders Rule 9006 Generally
The procedure for filing proofs of claim for chapter 11 cases is governed by Rule 3003 of the Federal Rules of Bankruptcy Procedure (hereafter "Bankruptcy Rule(s)" or "Rule(s)"). See F.R.Bankr.P. 3003(a). A creditor in a chapter 11 case is not required to file a proof of claim if the claim is provided for in a debtor's schedule of liabilities and if the debtor does not schedule the claim as "disputed, contingent, or unliquidated." See 11 U.S.C. § 1111(a); F.R.Bankr.P. 3003(b)(1) and (c)(2). A proof of claim is deemed filed for any claim that appears in the debtor's schedules and that is not listed as disputed, contingent, or unliquidated. See 11 U.S.C. § 1111(a). If the debtor does not schedule a particular claim, or the claim is scheduled as disputed, contingent, or unliquidated, then a creditor must file a proof of claim, otherwise such creditor shall not be treated as a creditor with respect to such claim for the purpose of voting and distribution. See F.R.Bankr.P. 3003(c)(2)-(3). The last date for filing a proof of claim, or "bar date," is set by the Court pursuant to Rule 3003(c)(3) and a bar date order.
Rule 3003(c)(3) provides, in relevant part:
"The court shall fix and for cause shown may extend the time within which proofs of claim or interest may be filed."
A bar date order is an integral component of all successful chapter 11 plans. As stated by the Second Circuit Court of Appeals:
A bar [date] order serves the important purpose of enabling the parties to a bankruptcy case to identify with reasonable promptness the identity of those making claims against the bankruptcy estate and the general amount of the claims, a necessary step in achieving the goal of successful reorganization. To be sure, the amount of the claims may not be finally determined until adversary proceedings have been concluded, but establishing the identities and interests of the participants so that the claims-allowance process may begin is an essential function served by a bar [date] order. See, e.g., United States v. Kolstad (In re Kolstad), 928 F.2d 171, 173-74 (5th Cir. 1991); In re STN Enterprises, Inc., 99 B.R. 218, 220 (D.Vt. 1988). Thus, a bar [date] order does not "function merely as a procedural gauntlet," Kolstad, 928 F.2d at 173, but as an integral part of the reorganization process.
First Fidelity Bank, N.A. v. Hooker Invs., Inc. (In re Hooker Invs., Inc.), 937 F.2d 833, 840 (2d Cir. 1991) (internal citation corrected). Bar dates are analogous to statutes of limitations, and therefore should be strictly observed. See In re Keene Corp., 188 B.R. 903, 907 (Bankr.S.D.N.Y. 1995).
If a creditor fails to file a claim by the bar date, a creditor must resort to Rule 9006. Rule 9006 is a general rule that governs, among other things, the computation, enlargement and reduction of time periods outlined in other Bankruptcy Rules. Rule 9006(b)(1) provides, in pertinent part:
Except as provided in . . . 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 . . . 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.
Upon a proper showing, Rule 9006(b)(1) authorizes the Bankruptcy Court to enlarge the time in which a party is required to act. Below, the Court will discuss Rule 9006 in the context of late-filed proofs of claim.
B. Excusable Neglect
Bankruptcy courts have the authority to accept untimely claims in a chapter 11 case if the creditor demonstrates that its failure to file a timely proof of claim was the result of excusable neglect. See Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 388 (1993). The burden of proof is on the moving party to prove excusable neglect. See In re Keene Corp., 188 B.R. at 907 n. 2. The Supreme Court examined the concept of excusable neglect in Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380 (1993).
In Pioneer, claimants in a chapter 11 bankruptcy case were allowed to file proofs of claim after the bar date where their attorney had failed to file a timely claim. In rejecting a narrow construction of Rule 9006(b)(1), the Supreme Court held that "Congress plainly contemplated that the 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. In so holding, the Court resolved a conflict in the Circuit Court of Appeals, where the majority of courts had taken a narrow view of excusable neglect under Rule 9006(b)(1). Id. at 387 n. 3. Until Pioneer, the majority of circuit courts had required a showing that the failure to file a timely claim was caused by circumstances beyond the movant's control. See Id. The Court reached its conclusion by relying on the ordinary definition of the word neglect. According to the Court, the ordinary definition of neglect already encompassed simple faultless omissions as well as omissions caused by carelessness.
By incorporating a flexible approach, the Court concluded that in determining what sort of neglect will be considered excusable, courts would be guided by equitable considerations taking into account all relevant circumstances surrounding the party's omission. Id. at 395. These equitable considerations include: (i) the danger of prejudice to the debtor; (ii) the length of the delay and its potential impact on judicial proceedings; (iii) the reason for the delay, including whether it was within the reasonable control of the movant; and (iv) whether the movant acted in good faith. Id.
The Supreme Court ruled that clients must be held accountable for the acts and omissions of their chosen counsel. Specifically, the Court stated that "in determining whether respondents' failure to file their proofs of claim prior to the bar date was excusable, the proper focus is upon whether the neglect of respondents and their counsel was excusable." Pioneer, 507 U.S. at 397 (emphasis in original). Hence, by referring to Proof of Claim Counsel in this discussion, this Court is not distinguishing PPC from the actions and omissions of its chosen counsel.
Subsequent authorities, while applying the Court's analytical framework, have recognized that the facts of Pioneer are not indicative of the typical chapter 11 case. See, e.g., In re Keene Corp., 188 B.R. at 907, 909 ("In most chapter 11 cases, the bar date notice is clear and unambiguous. This necessarily entails a more searching inquiry of the factors surrounding the late filing than was required in Pioneer"). In Pioneer, the bar date notice was included as a brief reference in the notice of a section 341(a) meeting of creditors. On this basis, the Court agreed with the Court of Appeals for the Sixth Circuit in concluding that a "dramatic ambiguity" shrouded the bar date notice circulated to creditors. In the portion of its discussion devoted to the sufficiency of the facts adduced in the lower courts and their applicability to the equitable considerations, the Court stated that:
We do . . . consider significant that the notice of the bar date provided by the Bankruptcy Court in this case was outside the ordinary course in bankruptcy cases. As the Court of Appeals noted, ordinarily the bar date in a bankruptcy case should be prominently announced and accompanied by an explanation of its significance. We agree with the court that the "peculiar and inconspicuous placement of the bar date in a notice regarding a creditors['] meeting," without any indication of the significance of the bar date, left a "dramatic ambiguity" in the notification.
Pioneer, 507 U.S. at 398 (citations omitted).
In contrast, the typical bar date notice in the typical chapter 11 case is unambiguous. Cases within this district have recognized that the sufficiency of notice is part of the excusable neglect inquiry. See Manousoff v. Macy's Northeast, Inc. (In re R.H. Macy Co., Inc.), 166 B.R. 799, 801 (S.D.N.Y. 1994) (listing the quality of notice as part of the Pioneer factors); In re Alexander's Inc., 176 B.R. 715, 719-20 (Bankr. S.D.N.Y. 1995) (listing adequacy of notice as part of the Pioneer factors); In re Hills Stores Co., 167 B.R. 348, 351 (Bankr.S.D.N.Y. 1994) (same); In re R.H. Macy Co., Inc., 161 B.R. 355, 361 (Bankr.S.D.N.Y. 1993) (same); see also 10 ALAN N. RESNICK HENRY J. SOMMER, COLLIER ON BANKRUPTCY 9006.06[3] (15th ed. rev. 2002) ("Turning to the facts of the case before it, the [Supreme] Court was careful to point out that it gave `little weight to the fact that counsel was experiencing upheaval in his law practice at the time of the bar date.' However, the fact that notice of the bar date was given in unusual fashion . . . was important.") (emphasis in original). Hence, notice of the bar date is relevant to determining whether the underlying equities amount to excusable neglect.
The relative weight to be accorded to the factors identified in Pioneer requires recognizing that not all factors need to favor the moving party. See In re Keene Corp., 188 B.R. 903, 909 (Bankr.S.D.N.Y. 1995). 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). With these observations in mind, this Court will turn to a discussion of the Pioneer factors and their application to this case.
V. Application of Facts to Law
The Court will consider the equitable factors identified in Pioneer below.
A. The reason for the delay
The "reason for the delay" factor incorporates the Pioneer Court's concern with sufficient notice. See U.K. Northridge, Inc. v. Au Coton, Inc. (In re Au Coton, Inc.), 171 B.R. 16, 18 (S.D.N.Y. 1994) ("Indeed, the Pioneer Court concluded that the neglect at issue there was excusable because the notice of the bar date `was outside the ordinary course in bankruptcy cases' in that it was `peculiar[ly] and inconspicuous[ly] place[d] . . . in a notice regarding a creditors' meeting.' The Court therefore found that the delay was not within the reasonable control of the delinquent creditors." The District Court ultimately concluded that disallowing a late-filed claim was within the bankruptcy court's discretion where it was simple carelessness that caused the filing of a tardy claim) (citations omitted)). Debtors argue that PPC fails to articulate any reason for the delay in filing an untimely claim. The Court agrees with Debtors' contentions.
The Court recognizes that the reason for the delay does not have to be outside the creditor's control. See Pioneer, 507 U.S. at 388 ("Congress plainly contemplated that the 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"). Nonetheless, a creditor needs to explain the circumstances surrounding the delay in order to supply this Court with sufficient context to fully and adequately address this factor and the ultimate determination of whether the equities support the conclusion that neglect is excusable. Here, other than the generalization that Proof of Claim Counsel failed to file a timely claim because of a mere oversight, no effort was made to explain the surrounding circumstances. Moreover, there is no indication in the instant record that notice of the bar date was anything other than adequate, sufficient and unambiguous. Explaining the circumstances enables a court to address what the Supreme Court has ultimately characterized as an equitable determination taking into account all relevant circumstances surrounding the party's omission. Pioneer at 395. Without such explanation, the Court cannot perform the requisite analysis. Considering that notice appears sufficient and that PPC has not otherwise provided an explanation regarding the circumstances of the tardily-filed claim, the Court finds that the "reason for the delay" factor heavily favors the Debtors.
B. The danger of prejudice to the debtor
Similar to certain considerations raised in Keene, if the Court allows PPC to file a tardy claim the potential prejudice to Debtors is genuine. See Keene, 188 at 913. It appears that there are simply no distinguishing factors here that would differentiate PPC from any other creditor that simply failed to adhere to the Bar Date because of a mere oversight. It can be presumed in a case of this size with tens of thousands of filed claims, that there are other similarly-situated potential claimants to PPC. Any deluge of motions seeking similar relief would prejudice the Debtors' reorganization process.
The Court would reach the same conclusion even if the Court considered the fact that PPC's claim is relatively small and that the Debtors have not filed and/or confirmed a plan of reorganization. Although courts have sometimes considered those issues, see Manousoff, 166 B.R. at 802, PPC has failed to convince this Court that considering the size of PPC's claim at this stage of Debtors' cases would tip the analysis here in PPC's favor. Therefore, this factor does not favor PPC but favors Debtors instead.
C. The length of delay and its potential impact on judicial proceedings
There is no indication in the instant record that the length of delay will have a significant impact on these judicial proceedings. Therefore, this factor favors PPC.
D. Whether the movant acted in good faith
There is no indication in the instant record that PPC acted in any manner other than in good faith. Therefore, this factor favors PPC.
VI. Conclusion
In assessing whether particular facts generate the conclusion that neglect is excusable, Pioneer recognizes that the typical movant requesting to file an untimely proof of claim need not be blameless. Pioneer requires that this Court address this question by considering the equities of each case. Applied here, Proof of Claim Counsel's failure to adhere to the Bar Date and file a timely claim was certainly careless. However, the ordinary definition of neglect already incorporates this concept. PPC has not met its burden of proof that even though Proof of Claim Counsel was careless, that the equities necessitate the conclusion that Proof of Claim Counsel's carelessness was also excusable. The Court has reached this conclusion after considering the equitable considerations identified in Pioneer and the parties submissions. As a consequence, it is hereby
ORDERED, that PPC's motion to permit an untimely claim due to excusable neglect is hereby DENIED.