Opinion
Case No. 02-13533 (AJG), Jointly Administered.
April 5, 2005
Mark A. Shaiken, Esq., Patricia A. Konopka, Esq., Amy R. Miller, Esq., Of Counsel, STINSON MORRISON HECKER LLP, Kansas City, MO, Attorneys for Reorganized Debtors.
RAUL ACOSTA, Pro Se.
MEMORANDUM DECISION DENYING RAUL ACOSTA'S MOTION FOR LEAVE TO FILE A LATE PROOF OF CLAIM
The issue before the Court is whether Raul Acosta (the "Claimant") may file a late proof of claim against the debtors beyond the deadline established for filing proofs of claim. Upon consideration of the parties' pleadings and arguments made at the hearing regarding the Claimant's motion for leave to file a late proof of claim, the Court denies the relief requested because the Claimant has failed to establish that his 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), 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) of title 28 of the United States Code.
II. Background
A. The Debtor
On July 21, 2002 (the "Commencement Date") and November 8, 2002, WorldCom, Inc. and certain of its direct and indirect subsidiaries (collectively, the "Debtor") commenced cases under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). By orders dated July 22, 2002 and November 12, 2002, the Debtor's chapter 11 cases were consolidated for procedural purposes. During the chapter 11 cases, the Debtor had been operating its businesses and managing its properties as debtor in possession pursuant to section 1107(a) and 1108 of the Bankruptcy Code.
On July 29, 2002, the United States Trustee formed the Official Committee of Unsecured Creditors (the "Committee") of the Debtor.
By order dated October 29, 2002, this Court established January 23, 2003 as the deadline for the filing of a proof of claim against the Debtor (the "Bar Date"). By order dated October 31, 2003, the Court confirmed the Debtor's Modified Second Amended Joint Plan of Reorganization which became effective on April 20, 2004 (the "Plan"). Upon the effective date, the Debtor became MCI WorldCom Communications, Inc. ("MCI").
B. The Claimant
The Claimant began his employment with the Debtor on November 20, 1995, in Colorado Springs, Colorado. In 1999, the Claimant started working in the Mass Markets Billing Support Group where he was a production support analyst/systems support analyst. The Claimant remained with the Debtor until January 26, 2004, when the Debtor terminated his employment.
C. Pre-Petition Claim
On November 1, 2003, the Court received and docketed a letter from the Claimant regarding an employment dispute he had with the Debtor (the "Letter"), which did not request a hearing regarding the dispute. Some time thereafter, the Claimant called the Court and requested a hearing regarding the Letter as an administrative claim. On January 29, 2004, the Debtor filed an objection to the Claimant's request that the Letter be treated as an administrative claim. The Court then scheduled a hearing regarding the Letter on February 3, 2004.
At the February 3, 2004 hearing, the Court denied the Claimant's Letter as an administrative claim without prejudice to him filing a pre-petition unsecured claim because the conduct at issue occurred during the pre-petition period. The Court stated that if the Claimant filed the pre-petition claim it would be treated as having been filed on November 1, 2003, the date the Letter was docketed with the Court. Further, it would be subject to the Debtor's right to raise any objections, including its timeliness, since November 1, 2003 was after the Bar Date. Moreover, at the same hearing, the Claimant argued that the Debtor had terminated his employment (post-petition) because he had filed the Letter with the Court. The Court stated that if he (the Claimant) believed he had been retaliated against, it would be a separate claim (different from the claim set forth in the Letter), and that it would be considered as a request for payment of an administrative/post-petition claim because the alleged improper conduct occurred post-petition.
Thereafter, on February 20, 2004, in response to the Court's above determination, the Claimant filed the pre-petition claim and a post-petition claim. The pre-petition claim is based upon the alleged promise of a promotion to project manager and pay for project management work that he performed in 1999 and requests $60,000 for wages based on the alleged promise (the "Pre-Petition Claim"). The post-petition claim is based upon alleged retaliatory/wrongful termination of the Claimant's employment because he filed the Letter with the Court (the "Post-Petition Claim").
On March 31, 2004, the Debtor filed an Objection to the Claimant's Pre-Petition Claim and the Post-Petition Claim. The Court held a hearing regarding the Pre-Petition Claim and the Post-Petition Claim on April 6, 2004, in which it took the Pre-Petition Claim under advisement, with respect to the timeliness of the claim, and adjourned the Post-Petition Claim for July 13, 2004 to allow the parties to conduct further discovery. This Memorandum Decision addresses the Debtor's objection to the timeliness of the Pre-Petition Claim.
III. Discussion
A. Bar Date
A fundamental purpose of bankruptcy law is to secure, within a limited period, a prompt and effectual administration and settlement of the debtor's estate. In re Best Products Co., 140 B.R. 353, 356 (Bankr. S.D.N.Y. 1992) (citing Katchen v. Landy, 382 U.S. 323, 328 (1966)). 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 a proof of claim must be filed by the claimant prior to a 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 actual 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." Id. at 357. After the bar date expires, "the claimant cannot participate in the reorganization unless [the claimant] establishes sufficient grounds for the failure to file a proof of claim." Id. Also, upon confirmation of a debtor's reorganization plan, a debtor is discharged from any debt that arose before the date of such confirmation. See 11 U.S.C. § 1141(d).
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) (noting that "[t]he Fifth . . . Amendment protect[s] against deprivation of `life, liberty or property, without due process of law.' A . . . claim against the [bankruptcy] estate constitutes property within the meaning of the Amendment and cannot be forfeited through proceedings lacking in due process."). In particular, due process requires that "known" creditors be afforded notice reasonably calculated, under all 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).
The Debtor does not dispute that the Claimant is a "known" creditor of the Debtor. The Debtor listed the Claimant in the Debtor's schedule of creditors. Therefore, since the Claimant is a "known" creditor of the Debtor, the issue is whether actual notice was given to the Claimant as required by the Due Process Clause of the Fifth Amendment.
Here, the Debtor has provided an affidavit from Bankruptcy Services LLC ("BSI") which states that a proof of claim and Bar Date notice was served via mail upon the Claimant on November 22, 2002 at his home address at 4275 Gracewood Drive, Colorado Springs, CO 80920. In addition, the Debtor has provided an affidavit of mailing which stated that BSI sent such notice of the Bar Date in separate postage pre-paid envelopes, to be delivered by first class mail to all the parties listed in the schedule of creditors on which the Claimant is listed. The Debtor argues that in addition to the Claimant having been sent the Bar Date notice, he was given publication notice via the Wall Street Journal, New York Times, and Washington Post.
Following the Claimant raising the issue of notice of the Bar Date at the hearing on April 6, 2004, the Court directed the Debtor to send a letter with a copy to the Claimant as to whether or not the Claimant was sent a notice of the Bar Date. In addition, the Court recognized that the Claimant said he had not received the notice. On April 7, 2004, the Debtor sent to the Court with a copy to the Claimant, the letter along with supporting documentation that notice of the Bar Date was in fact sent to the Claimant at his home address. The Claimant has not raised an issue as to the accuracy of such notice and that it was in fact sent as stated.
The Claimant argues that he was never given notice of the deadline to file a proof of claim. In addition, the Claimant argues that he did not see the Bar Date notice that was published in the Wall Street Journal, New York Times, and Washington Post because he does not read those papers and is not a subscriber to them.
In Tulsa Prof'l Collection Servs., Inc. v. Pope, 485 U.S. 478 (1982), the Supreme Court stated that "mail service is an inexpensive and efficient mechanism that is reasonably calculated to provide actual notice." Id. at 490. "A presumption that proper notice was given arises once a debtor proves that the notice was mailed." In re Agway, Inc., 313 B.R. 31, 39 (Bankr. N.D.N.Y. 2004) (citing In re Bucknum, 951 F.2d 204, 207 (9th Cir. 1991); In re Treister, No. 84 Civ. 3508 (JFK), 1985 WL 2044, at *2 (S.D.N.Y. July 19, 1985)). A presumption of receipt of notice arises when mail is properly (1) addressed, (2) stamped, and (3) deposited in the mail system. In re La Roche Indus., Inc., 307 B.R. 774 (Bankr. D. Del. 2004) (quoting Hagner v. United States, 285 U.S. 427 (1932)).
Here, the Debtor has established via an affidavit provided by BSI that the Claimant was sent the Bar Date notice to his home address on November 22, 2002. The Claimant does not dispute that the address provided by the Debtor is incorrect. A presumption that proper notice was given arises because the Debtor has established that the notice was mailed, and the Claimant has not provided any evidence to the contrary. Furthermore, the Claimant does not dispute or provide any evidence to rebut the Debtor's evidence that it was properly addressed, stamped, or deposited in the mail system, or that the mail was returned as undeliverable to the Debtor. Therefore, the Court finds that a presumption of receipt of notice also arises. Accordingly, the Court finds that the Debtor properly provided the Bar Date notice to the Claimant. Because the Court has concluded that notice of the Bar Date was properly given in this case, the Court need not consider the parties' remaining arguments regarding publication notice.
B. Excusable Neglect
The next issue is whether the Bar Date will be extended. The Bar Date will be extended if the Claimant shows that his failure to file a timely claim was the result of excusable neglect.
If a creditor fails to file a claim by the bar date, a creditor must resort to Bankruptcy Rule 9006(b)(1). See In re Enron Corp., No. 01-16034, 2003 WL 21756785, at *4 (Bankr. S.D.N.Y. July 30, 2003). Bankruptcy Rule 9006(b)(1) provides that a bankruptcy court in its discretion may deem a late filed proof of claim as timely where a claimant establishes "excusable neglect." The burden is on the claimant to prove that he or she did not timely file the proof of 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, supra. 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." Id. 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 into account all of 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 actual control of the movant," and (4) "whether the movant acted in good faith." Id.
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 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 Pioneer's four equitable factors in mind, the Court turns to the facts of this case to determine if the Claimant's failure to file a timely proof of claim was caused by "excusable neglect."
1. Reason For Delay And Whether Delay Was Within The Actual Control Of The Claimant
First, the Court will look to the reason for delay and whether the delay was within the actual control of the Claimant. This Court has previously decided in an unpublished opinion in In re Enron, No. 01-16034, 2003 WL 1889042, at *4 (Bankr. S.D.N.Y. April 8, 2003), that this factor incorporates the sufficiency of notice of the bar date. Id. A creditor needs to explain the circumstances surrounding the delay. The Claimant argues that his reason for the delay was that he did not receive notice of the Bar Date. Since, the Court finds that the Claimant was sent actual notice of the Bar Date, as discussed previously, simply stating that he did not receive the Bar Date notice without offering any evidence to the contrary is insufficient to rebut the presumptions of mailing and receipt.
Furthermore, the Claimant states that he "apologize[s] for not understanding the bankruptcy court process and now ask[s] for leniency and an exception to the deadline because — my claim is valid and supported in writing." The Claimant also argues that he did not file a claim because (1) the Debtor knew of his issue regarding his alleged promised promotion, and (2) as an employee he was fearful of retaliation if he filed a proof of claim. The Court notes that the argument regarding the Claimant's fear of retaliation seems to be inconsistent with his statement that he did not receive notice of the Bar Date because it would appear that his explanation, as to his concern of retaliation, would have been based on an awareness of the proof of claim process, which usually a creditor becomes aware of by notice of the Bar Date. Although that does not establish that he received notice of the Bar Date, it would appear to raise an issue as to whether he did receive it.
Nevertheless, the Court finds that his arguments are unpersuasive because they do not demonstrate circumstances that were out of the control of the Claimant. The Debtor argues that there is nothing unique or extraordinary about either the Bar Date process in this case or the Claimant's situation. In addition, the Debtor argues that "[c]ountless other claimants undoubtedly exist who have filed a proof of claim at this time, and who have not engaged counsel with respect to this case." The Court agrees with the Debtor's argument that if a pro se claimant's lack of understanding of the bankruptcy process and failure to hire counsel was sufficient to make out a case for excusable neglect, no bar date order would likely apply to claimants who did not hire counsel, and, in this case, there could be numerous claimants with respect to whom, as a practical matter, the Bar Date would not apply. Also, the Court agrees with the Debtor that allowing such a claim on that basis would be a floodgate to similar claims which would undermine the integrity of the Bar Date.
The Debtor in its motion papers cited In re New York Seven-Up Bottling Co., 153 B.R. 21 (Bankr. S.D.N.Y. 1993) for the proposition that "[e]xcusable neglect is found when a party's failure to file timely a proof of claim is due to unique or extraordinary circumstances beyond the reasonable control of the delinquent party. . . ." Id. at 23.
Furthermore, whether or not the Debtor knew of his employment dispute is irrelevant to why he did not file his proof of claim on time. In addition, the Claimant's alleged fear is speculative in that he has failed to show the basis of such fear. In fact, numerous employees have filed claims against the Debtor. The Court is unaware of any claim(s) of retaliation, other than the Claimant's Post-Petition Claim, for such filings and the Claimant did not bring to the attention of the Court any such retaliation claims. Accordingly, based upon all of the aforementioned, the Claimant has failed to show circumstances that were beyond his control. Therefore, this Pioneer factor weighs in favor of the Debtor.
2. Whether The Claimant Acted In Good Faith
The Debtor does not dispute the Claimant's good faith. The Court finds that even considering the Claimant's seemingly inconsistent argument regarding the Bar Date, as noted above, the Claimant appears to have acted in good faith. Therefore, this Pioneer factor weighs in favor of the Claimant.
3. Danger Of Prejudice To The Debtor
The Debtor essentially argues that allowing the Claimant's late claim would allow for a floodgate to many similar claims. The Debtor argues that because of the size and complexity of this chapter 11 case, the Debtor must review and analyze over 34,000 proofs of claim; therefore, if it is constantly receiving late claims, the post-confirmation process will be severely impeded to the detriment of all creditors who timely filed their claims. Moreover, the Debtor argues that even though the Claimant's claim may not be large in comparison to the total claims in this case, this Court has dismissed this as a factor in other cases in the past. The Debtor cites this Court's decision in In re Enron Corp., 2003 WL 1889042, at *20 ("While Midland's Guaranty claim is not substantial in relation to the Debtors' estate . . . the Court nevertheless finds that prejudice to the Debtors is significant here.").
The Keene court 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." Id., 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.
If the Court allows the Claimant to file a tardy claim, the potential prejudice to the Debtor could be significant. It can be presumed that in a case of this size, where thousands of claims have been filed, that there are potential claimants similarly situated to the Claimant and a floodgate of motions seeking similar relief would prejudice the Debtor. Specifically, the Court finds that although the Claimant's claim is not substantial in relation to the rest of the claims filed against the Debtor's bankruptcy estate, allowing such a claim to be filed under these circumstances, where a Claimant simply denies receipt of notice of the Bar Date without further explanation, would be significantly prejudicial to the Debtor in that it would result in other claimant(s) who failed to file a timely claim, to simply state that they did not receive the notice, and without more, be permitted to file a late proof of claim. The result would be that it would be difficult for a debtor to bring closure to the claims process if an exception to the bar date were so easily established. Therefore, the Court finds that this Pioneer factor weighs in favor of the Debtor.
4. Length Of Delay And Its Potential Impact On Judicial Proceedings
The Debtor argues that the Claimant filed his proof of claim ten months after the Bar Date and cited this Court's ruling in In re Enron, 2003 WL 1889042, at *21, for the proposition that filing a claim more than six months after the bar date is a substantial delay. The Court finds that a tenth month delay is a substantial delay. The Court notes that although this one particular claim would not have a significant impact on the judicial proceedings, "the Bar Date . . . was meant to function as a statute of limitations and effectively exclude such late claims in order to provide the Debtor and its creditors with finality to the claims process and permit the Debtor to make swift distributions under the Plan. To find otherwise, that is outside of the context of excusable neglect, would vitiate the very purpose of the Bar Date . . . and would clearly impact the Debtor's reorganization process." In re XO Communications, Inc., 301 B.R. 782, 797-98 (Bankr. S.D.N.Y. 2003). Accordingly, the Court finds that this Pioneer factor weighs in favor of the Debtor.
V. Conclusion
Based upon the foregoing, the Court finds that the Claimant has failed to establish "excusable neglect" under Rule 9006(b)(1) pursuant to the factors set forth in Pioneer. Thus, the Claimant is not permitted to file his late Pre-Petition Claim. Furthermore, the Court finds that even if it were to accept the late filed Pre-Petition Claim, it would appear to be barred by Colorado's statute of limitations. Since the alleged wrongful conduct occurred sometime in 1999, the two-year statute of limitations under Colo. Rev. Stat. § 8-4-122 would have expired prior to the filing of the Debtor's bankruptcy cases on July 21, 2002. See Colo. Rev. Stat. § 8-4-122 (setting the limitations period for actions related to wages to two years). In addition, the Claimant has failed to establish a cognizable claim upon which relief would be granted.
Based upon the motion papers and exhibits the Claimant provided in support of his Pre-Petition Claim, it appears to the Court that the Claimant received nothing more than a recommendation for promotion which was repeatedly rejected by the Debtor's management at the time.
The Debtor should settle an order consistent with this decision.