Opinion
Case No. 02 B 02474.
September 17, 2004
MEMORANDUM OPINION
This matter is before the Court on the Motion of Edward DeAllen ("DeAllen") for Leave to File Late Administrative Claim (the "Motion"). DeAllen, a personal injury claimant, failed to file an administrative proof of claim by the June 20, 2003 bar date. He now seeks entry of an order deeming his late-filed claim to be timely.
BACKGROUND
On January 22, 2002, Kmart Corporation and thirty-seven of its subsidiaries and affiliates filed voluntary Chapter 11 petitions in this court. Kmart continued to operate as debtor in possession thereafter.
On or about August 13, 2002, after the filing of the petitions, DeAllen allegedly sustained personal injuries at a Kmart store in North Hollywood, California. DeAllen thereafter retained Pejman Rahnama to represent him in connection with his claim for injuries. Suit was filed on DeAllen's behalf in the Superior Court of Los Angeles County, California on February 4, 2003.
Rahnama avers, in an affidavit attached to the Motion, that on April 15, 2003 he sent a demand letter to Kmart claims adjuster Marsha Potts, proposing settlement in the amount of $120,000, together with medical billings and charts.
On April 23, 2003, this Court entered an order confirming the First Amended Joint Plan of Reorganization of Kmart Corporation and its Affiliate Debtors and Debtors-in-Possession, as modified (the "Plan"). The Plan became effective on May 6, 2003 (the "Effective Date"). Shortly after the Effective Date, Trumbull Services, LLC, the court-approved noticing agent in this case, caused to be served a "Notice Regarding (A) Entry of Order Confirming the First Amended Joint Plan of Reorganization of Kmart Corporation and its Affiliated Debtors and Debtors-in-Possession, (B) Occurrence of Effective Date, and (C) Notice of the Administrative Bar Date" (the "Notice"). Paragraph 7 on the fourth page of the Notice contained a section entitled "Administrative Claims Bar Date." That section stated that "Administrative Claims" (other than certain types of claims dealt with elsewhere in paragraph 7) had to be filed by June 20, 2003 (the "Administrative Bar Date").
On July 21, 2003, the day before a case management conference in the Los Angeles County action, Kmart's counsel served upon Rahnama a Notice of Bankruptcy and Administrative Claim Process (the "State Court Notice"). The State Court Notice stated that an Administrative Expense Claim Request form had been mailed to DeAllen on or about May 6, 2003 and that under the terms of Kmart's confirmed plan, failure to timely submit the claim form "will automatically bar plaintiff from any further action against Kmart Corporation." The next day, an attorney from Rahmana's firm appeared at the case management conference and reported back to Rahnama that Kmart's counsel had advised the state court that DeAllen's failure to submit the claim form constituted a bar to the personal injury action. The action was then continued to allow Kmart to file a motion to dismiss.
Rahnama avers that the statements made at the case management conference on July 22, 2003, and the State Court Notice received by Rahnama the same day, constituted "the first actual information concerning the June 20, 2003 . . . bar date" of which either Rahnama or his firm had "actual knowledge." Rahnama goes on to aver;
While I certainly cannot assert with any certainty that written notification of the Administrative Claim bar date was not served by the administrators for the Debtor (". . . on or about May 6, 2003 . . ."), as alleged in [the State Court Notice], I do honestly, truthfully and affirmatively state herein that if notification of the Administrative Claim Bar date was in fact served by mail, and even received in my office, it was somehow lost or mislaid, and certainly neither calendared nor placed in our case file for Claimant. As the branch of my law firm which is handling the State Court case for Claimant employs specific procedures for receiving, calendaring and acting upon all mail and other communications we receive, which includes entering all time and calendar obligations into a specialized computer program from which we generate daily and weekly reports, I can only conclude and urge the Court to accept the explanation for our failure to timely file an Administrative Claim on behalf of Claimant as the product of excusable neglect within the purview of Bankr. Rule 9006(b)(1).
Kmart submitted the affidavit of Marc V. Orfitelli, a Case Analyst at Trumbull, indicating that the Administrative Bar Date Notice was sent to DeAllen on May 9, 2003, in care of his counsel, Rahnama. The Notice was sent again on May 19, 2003, together with an administrative claim form. Although there were minor typographical errors in the spelling of Rahnama's name and the law firm name, Orfitelli avers that neither mailing was returned as undeliverable.
DeAllen first submitted his late claim motion for filing on September 23, 2003; however, it was returned because of alleged deficiencies. The Motion was resubmitted and filed on December 15, 2003, and the claim form was filed with Trumbull the same day.
DISCUSSION
DeAllen urges, as set forth in the affidavit quoted above, that his counsel either did not receive the Administrative Bar Date Notice or, — if it was received, — that it was somehow lost or mislaid. He also contends that Rahnama's April 15, 2003 demand letter to claims adjuster Marsha Potts constituted an informal proof of claim. The Court will first address the latter issue.
The informal proof of claim doctrine is equitable in nature and was "developed by the courts to ameliorate the strict enforcement of the claims bar date." In re Wigoda, 234 B.R. 413, 415 (Bankr. N.D.Ill. 1999). As noted by Judge Katz in In re Griffin Trading Co., 270 B.R. 883 (Bankr. N.D.Ill. 2001), the Seventh Circuit has acknowledged the doctrine and addressed certain of the issues related to it, but has not specifically articulated the requirements necessary for an informal proof of claim. Id. at 895. Many courts, however, include a requirement that the document constituting the informal claim be filed with the bankruptcy court. As noted in Griffin Trading,
Recent decisions in the Fifth, Sixth and Tenth Circuits have articulated a five part test to determine whether a writing constitutes an informal proof of claim. . . . The test requires that 1) the claim must be in writing; 2) the writing must contain a demand by the creditor on the debtor's estate; 3) the writing must evidence an intent to hold the debtor liable for such a debt; 4) the writing must be filed with the bankruptcy court; and 5) based upon the facts of the case, allowance of the claim must be equitable under the circumstances. Id. at 896.
Judge Katz further indicated in Griffin Trading that the Eleventh Circuit uses a test similar to that employed in the Fifth, Sixth, and Tenth Circuits, Griffin Trading, 270 B.R., at 897 (citing, inter alia, Biscayne 21 Condominium Assoc., Inc. v. South Atlantic Financial Corp. (In re South Atlantic Financial Corp.), 767 F.2d 814 (11th Cir. 1985)), but that the Eighth and Ninth Circuit tests are somewhat different. Griffin Trading, 270 B.R., at 896-97 (citing First Am. Bank Trust of Minot v. Butler Mach. Co. (In re Haugen Const. Serv., Inc.), 876 F.2d 681 (8th Cir. 1989) and Sambo's Restaurants, Inc. v. Wheeler (In re Sambo's Restaurants, Inc.), 754 F.2d 811 (9th Cir. 1985)) In Griffin Trading, Judge Katz followed "the majority of the circuits" in denying relief under the informal proof of claim doctrine where the writings had not been filed with the court. Griffin Trading, 270 B.R., at 897-898.
Judge Katz further indicated in Griffin Trading that the Eleventh Circuit uses a test similar to that employed in the Fifth, Sixth, and Tenth Circuits, Griffin Trading, 270 B.R., at 897 (citing, inter alia, Biscayne 21 Condominium Assoc., Inc. v. South Atlantic Financial Corp. (In re South Atlantic Financial Corp.), 767 F.2d 814 (11th Cir. 1985)), but that the Eighth and Ninth Circuit tests are somewhat different. Griffin Trading, 270 B.R., at 896-97 (citing First Am. Bank Trust of Minot v. Butler Mach. Co. (In re Haugen Const. Serv., Inc.), 876 F.2d 681 (8th Cir. 1989) and Sambo's Restaurants, Inc. v. Wheeler (In re Sambo's Restaurants, Inc.), 754 F.2d 811 (9th Cir. 1985)) In Griffin Trading, Judge Katz followed "the majority of the circuits" in denying relief under the informal proof of claim doctrine where the writings had not been filed with the court. Griffin Trading, 270 B.R., at 897-898.
In addition to Judge Katz, Judge Schwartz of this district has held that in order to grant relief under the informal proof of claim doctrine, the document must "(1) have been timely filed with the bankruptcy court and become part of the record, (2) state the existence and nature of the debt, (3) state the amount of the claim, and (4) evidence the creditor's intent to hold the debtor liable." Wigoda, 234 B.R. at 415.
This Court agrees that a document must be filed with the court and become part of the record before it can be considered an informal proof of claim. Here, Rahnama's April 15, 2003 letter was sent to Marsha Potts, a claims adjuster with Sedgwick Claims Management Services, Inc., Kmart's third-party administrator for public liability claims; it was not filed with the Court. DeAllen contends, however, that submission of the document to an agent for Kmart should be sufficient in this case, since none of the claims were required to be filed with the Court. However, the claims were required to be filed with Trumbull, and Trumbull, in receiving the claims against Kmart, acts as agent for the Court. See 28 U.S.C. § 156(c). Rahnama's April 15, 2003 letter was sent to Sedgwick, an agent for Kmart, — and not to Trumbull. Accordingly, DeAllen's informal proof of claim contention must fail.
Rahnama also states in his affidavit: "Although my file does not indicate that a response to [the April 15, 2003] demand letter was ever received, a search of the Trumbull Group Bankruptcy Data website, concerning the KMART Bankruptcy, indicates that said letter was apparently considered as a claim, no. 12707579. . . ." However, Kmart explains that such record is merely "a record of an address of a possible claimant or other party in interest to be used for notice purposes. This record does not indicate that a claim has been filed." (Kmart's Objection, ¶ 26; emphasis added) Kmart submits in support the Affidavit of Marc V. Orfitelli, ( See Orfitelli Affidavit, ¶ 2(c))
DeAllen's alternate contention, — that the Administrative Bar Date Notice either was not received or was somehow lost or mislaid, — also fails to warrant relief in this case. The Court first finds, for reasons discussed below, that DeAllen did in fact receive the Notice.
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 L.Ed. 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 is 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)).
The Supreme Court has "repeatedly recognized that mail service is an inexpensive and efficient mechanism that is reasonably calculated to provide actual notice." Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478, 490, 108 S.Ct. 1340, 99 L.Ed.2d 565 (1988). Mail properly addressed, stamped, and deposited in the mail system is presumed to have reached its destination in the usual time and to have actually been received by the party to whom it was addressed. See, e.g., Hagner v. U.S., 285 U.S. 427, 430, 52 S.Ct. 417, 76 L.Ed. 861 (1932); In re Bucknum, 951 F.2d 204, 207 (9th Cir. 1991).
Kmart claims the benefit of this presumption based on the Orfitelli affidavit, asserting that the presumption arises notwithstanding the typographical errors in the spelling of Rahnama's name and the law firm name. Specifically, "Pejman Rahnama" was spelled "Rejman Rahnama," and the firm name "Peyman Rahnama" was spelled "Peymand Rahnama." Minor errors such as these do not defeat the presumption of receipt. See, e.g., In re Longardner Assoc., Inc., 855 F.2d 455, 459 (7th Cir. 1988), cert. denied, 489 U.S. 1015, 109 S.Ct. 1130, 103 L.Ed.2d 191 (1989) (absence of zip code does not necessarily preclude a finding that the notice was properly addressed). Even if the presumption was weakened by such errors, it was strengthened by the fact that the Notice was mailed twice and neither was returned as undeliverable.
Moreover, while a simple denial of receipt may create a question of fact, it does not rebut the presumption. See Longardner, 855 F.2d at 459; In re Pettibone Corp., 123 B.R. 304, 310 (Bankr. N.D.Ill. 1990); see also In re Ms. Interpret, 222 B.R. 409, 413 (Bankr. S.D.N.Y. 1998) ("a party must do more than merely assert that it did not receive the mailing; its testimony or affidavit of non-receipt is insufficient, standing alone, to rebut the presumption").
Here, Rahnama's affidavit contains essentially a simple denial of receipt. Although he refers to his firm's "specific procedures for receiving, calendaring and acting upon all mail and other communications [they] receive," including "entering all time and calendar obligations into a specialized computer program from which . . . daily and weekly reports" are generated, he does not describe those procedures in detail. In certain instances, evidence of standardized procedures used in processing and routing mail may be sufficient, in combination with testimony of non-receipt, to rebut the presumption. See, e.g., In re Dodd, 82 B.R. 924, 929 (N.D.Ill. 1987). Rahnama's affidavit, however, falls short of the required showing. While the Court does not expect a small firm to describe the elaborate sorting and routing procedures that a large firm (such as Merrill Lynch, in the Dodd case) would be able to provide, the showing must nonetheless be as detailed and thorough as possible. In this case, for example, Rahnama fails to indicate, inter alia, who at his firm retrieves the mail, how it is routed, and who enters the calendar obligations into the firm's computer program.
Accordingly, the Court finds that the presumption of receipt has not been rebutted. Indeed, counsel acknowledged at the hearing on this matter that DeAllen cannot prove that the firm did not receive the Administrative Bar Date Notice. Instead, he predicated his argument largely on excusable neglect, based on the assumption that the Notice was received and somehow lost or mislaid.
Even if Kmart were denied the benefit of the presumption, however, — or even if the presumption were deemed rebutted, — the Court would nonetheless weigh all the evidence presented in this case and reach the same conclusion.
Rule 9006(b)(1) of the Federal Rules of Bankruptcy Procedure provides in relevant part 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 . . . (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. Prior to the Supreme Court's decision in Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), there was a disagreement among the circuits as to the meaning and scope of "excusable neglect." Robb v. Norfolk Western Railway Co., 122 F.3d 354, 358 (7th Cir. 1997). The Seventh Circuit was among those that interpreted the phrase narrowly. Id. That narrow approach was rejected in Pioneer, and the Supreme Court made it clear that neglect could be excusable even where it was the result of carelessness on the part of a litigant or his attorney.
Of course, not all carelessness is excusable. The Supreme Court concluded in Pioneer that the determination of whether 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.
The four factors cited by the Court are, however, not exclusive. As our Circuit Court of Appeals has noted, the Supreme Court "specifically rejected an approach that would `narrow the range of factors to be considered.'" Robb, 122 F.3d at 362. The Seventh Circuit has also noted, without deciding the issue, that three of its "sister circuits have held that fault in the delay is the preeminent factor in the Pioneer analysis." In re Kmart Corp. (Appeal of Wilhemina Simmons), ___ F.3d ___, 2004 WL 1908374, *5 (7th Cir. Aug. 27, 2004). In Simmons, the Court found the reason for the delay a "poor one" and "immensely persuasive" in the excusable neglect inquiry. Id.
Here, the only reason given for the delay of several months is that the Notice was somehow lost or mislaid. The Court finds that reason to be a "poor one." Indeed, even though DeAllen and her counsel have acted in good faith, and even assuming that Kmart would not be prejudiced, under all the circumstances presented here, the relief requested must be denied. Again, not all carelessness is excusable. Setting a precedent of excusable neglect on these facts would undermine the goal of "deter[ring] creditors . . . from freely ignoring court-ordered deadlines." Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. at 395.
Rahnama also states that he submitted the motion to this Court on September 23, 2003, i.e., approximately two months after he became aware of the bar date; but the motion was not resubmitted and filed until December 15, 2003, almost three months later.
CONCLUSION
For all the foregoing reasons, the Court denies the Motion of Edward DeAllen for Leave to File Late Administrative Claim. This opinion constitutes the Court's findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052. A separate order will be entered pursuant to Bankruptcy Rule 9021.