K-Mart Corporation v. Simmons, Wilhemina ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-4084
In the matter of: KMART CORPORATION, et al.,
Debtors-Appellees,
Appeal of: WILHEMINA SIMMONS,
Appellant.
____________
Appeal from the United States District Court for
the Northern District of Illinois, Eastern Division.
No. 03 C 96—Amy J. St. Eve, Judge.
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ARGUED APRIL 9, 2004—DECIDED AUGUST 27, 2004
____________
Before BAUER, EASTERBROOK, and KANNE, Circuit Judges.
KANNE, Circuit Judge.
I. Background
Kmart, Corp. filed a petition for relief under Chapter 11
of the Bankruptcy Code on January 22, 2002 (“Petition
Date”). On March 26, 2002, the bankruptcy court entered an
order establishing July 31, 2002 as the deadline for filing
proofs of claim (“Original Bar Date” or “Bar Date”). See Fed.
R. Bankr. P. 3003(c)(3) (The “court shall fix and for cause
shown may extend the time within which proofs of claim or
2 No. 03-4084
interest may be filed.”). Later, upon Kmart’s motion, the
bankruptcy court established a supplemental bar date of
January 22, 2003 (“Supplemental Bar Date”) for a limited
set of pre-Petition Date creditors who had not previously
been sent notice of the Original Bar Date. See id.
Appellant Simmons suffered a fall in a Kmart store in St.
Croix, U.S. Virgin Islands, on December 13, 2001. She
sought to pursue a $750,000 pre-Petition Date personal-
injury claim against Kmart based upon her accident, which
she asserts was caused by a malfunctioning store door.
Notice of the Bar Date was sent to Simmons at her address
as listed in the files of Kmart’s third-party claims adminis-
trator, Trumbull Services. The mailing was never returned
to Kmart as “undeliverable.” However, Simmons asserts
that she never personally received the notice because the
address used by Trumbull was not her actual mailing ad-
dress. Nonetheless, it is undisputed that Simmons’s attorney
had actual knowledge of the Original Bar Date, as her
counsel had filed timely proofs of claims for over two dozen
other Kmart creditors.
Despite counsel’s awareness of the Original Bar Date,
Simmons’s proof of claim was untimely, delivered to Kmart
one day after the Bar Date on August 1, 2002. Apparently,
on July 30, the day before the Bar Date, Simmons’s at-
torney delegated to an office clerk the task of mailing
Simmons’s proof of claim. Unfortunately for Simmons, the
clerk waited until around two o’clock in the afternoon before
attending to the assignment. Either because of an oversight by
the clerk or because the post office refused to guarantee a
next-day delivery given the late hour, the clerk checked the
box for “Second Day Delivery” on the mail delivery in-
structions and the package arrived one day later than
Simmons and her attorney intended.
Moreover, although the claim form recommended that
claimants include a self-addressed stamped envelope so that
Trumbull could mail verification of its receipt of the form to
No. 03-4084 3
the claimant, Simmons’s attorney did not do so. Nor did
counsel make any follow-up phone calls to ensure that the
proof of claim was timely received. As a result, Simmons
(through counsel) did not realize that her filing was late until
September 23, 2002, when a notice from Kmart was received,
informing Simmons that her claim was now barred. For un-
known reasons, Simmons’s attorney then waited until October
21, 2002 to move under Rule 9006(b)(1) of the Federal Rules
of Bankruptcy Procedure for Simmons’s proof of claim to be
deemed timely filed.1
Evaluating whether Simmons’s late filing was the result
of “excusable neglect” as required under Rule 9006(b)(1), the
bankruptcy court considered the four factors established in
Pioneer Investment Services Co. v. Brunswick Associates
Ltd. Partnership, 507 U.S. 380, 395 (1993). On November
19, 2002, the court denied Simmons’s motion to deem her
claim timely filed.
Simmons again tried to avoid the effect of her late filing
by moving to have her claim covered by the Supplemental
Bar Date. On February 5, 2003, the court reasoned that
because her attorney had actual notice of the Bar Date,
1
Bankruptcy Rule 9006(b) provides:
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 en-
larged if the request therefor is made before the expira-
tion of the period originally prescribed or as extended by
a previous order or (2) on motion made after the expira-
tion of the specified period permit the act to be done where
the failure to act was the result of excusable neglect.
(emphasis added)
4 No. 03-4084
Simmons could not properly be considered one of the limited
set of creditors to whom the Supplemental Bar Date
applied. The court denied Simmons this “second bite of the
apple.”
The district court consolidated her subsequent appeals
and ultimately upheld both of the bankruptcy court’s rul-
ings. For the following reasons, we affirm.
II. Analysis
Our de novo review of the district court’s decision to af-
firm the bankruptcy court allows us to assess the bank-
ruptcy court’s judgment anew, employing the same stan-
dard of review the district court itself used. Corporate
Assets, Inc. v. Paloian, 368 F.3d 761, 767 (7th Cir. 2004)
(citing Frierdich v. Mottaz, 294 F.3d 864, 867 (7th Cir.
2002)). The bankruptcy court’s refusal to deem Simmons’s
claim timely filed will be overturned only in extreme cases,
when the bankruptcy court has abused its discretion. See In
re Singson, 41 F.3d 316, 320 (7th Cir. 1994). Likewise, we
review the bankruptcy court’s refusal to apply the Supple-
mental Bar Date to Simmons’s proof of claims—a ruling
essentially construing the import of the court’s prior order
establishing the Supplemental Bar Date—for an abuse of
discretion. See In re Weber, 25 F.3d 413, 416 (7th Cir. 1994).
In general terms, a court abuses its discretion when its
decision is premised on an incorrect legal principle or a
clearly erroneous factual finding, or when the record contains
no evidence on which the court rationally could have relied.
Corporate Assets, 368 F.3d at 767 (citing United States v. Jain,
174 F.3d 892, 899 (7th Cir. 1999); Salgado by Salgado v.
General Motors Corp., 150 F.3d 735, 739 & n.4 (7th Cir.
1998)).
No. 03-4084 5
A. Motion to Deem Simmons’s Claim Timely Filed
As we noted above, because Simmons’s proof of claim
was filed one day after the Original Bar Date, she moved to
have her claim deemed timely filed under Rule 9006(b).
Under Rule 9006(b), a bankruptcy court may, in its dis-
cretion, grant such relief if the late filing was the result of
“excusable neglect.” In its 1993 Pioneer decision, supra, the
Supreme Court established four factors to guide courts’ excus-
able neglect analyses. Specifically, a court assessing whether
to grant a motion under Rule 9006(b) to have a late-filed
proof of claim deemed timely must evaluate “[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 in the reasonable
control of the movant, and [4] whether the movant acted in
good faith.” 507 U.S. at 395. Simmons does not dispute that
the bankruptcy court correctly considered the four factors
outlined by Pioneer. Instead, Simmons posits that the court’s
factual determinations with respect to each of the factors
were clear error and that its ultimate decision to deny her
Rule 9006(b) motion was therefore an abuse of discretion.
We disagree.
1. Danger of prejudice to Kmart
The bankruptcy court determined that allowing Simmons’s
claim would cause prejudice to Kmart. Simmons aptly
points out that Kmart’s first amended plan of reorganiza-
tion was filed on February 25, 2003 and confirmed on April
23, 2003, nearly eight months after the Original Bar Date.
Therefore, the debtor Kmart, who had received Simmons’s
proof of claim on August 1, 2002, was on full notice of her
claim and could have easily taken it into account when it
drafted its reorganization plan (and in structuring any
economic models used to create the plan). Cf. O’Brien Envtl.
Energy, Inc. v. NRG Energy, Inc. (In re O’Brien Envtl. Energy,
6 No. 03-4084
Inc.), 188 F.3d 116, 126 (3d Cir. 1999) (laying out factors for
assessing prejudice under Pioneer, including whether the
debtor had knowledge of the claim at the time the reor-
ganization plan was filed or confirmed, and whether the late
filing would disrupt the plan or economic models used in the
plan’s development). Likewise, because the Supplemental Bar
Date was in the offing at the time of Simmons’s Rule 9006(b)
motion, Kmart was indisputably still in the process of iden-
tifying other claimants. Hence, Simmons posits, there was
no prejudice to Kmart as a result of Simmons’s tardy filing.
The bankruptcy court did not address these particular facts
in its Pioneer analysis, but instead emphasized Simmons’s
delay in bringing the Rule 9006(b) motion, which we ad-
dress in detail below, and the size of her claim, $750,000,
characterizing it as “no small amount.” Allowing Simmons’s
late-filed claim could induce other similarly sized late-
claimants to so petition the bankruptcy court. See In re
Specialty Equip. Cos. Inc., 159 B.R. 236, 239 (Bankr. N.D.
Ill. 1993). And while it is true that Simmons’s claim repre-
sents only a small fraction of the approximately $6 billion
total of unsecured claims against Kmart, if the bankruptcy
court allowed all late-filed claims of nearly a million dollars
where a simple “innocent mistake” (see our detailed
discussion of Simmons’s “reason” for the delay below) was
to blame for the tardiness of the proof of claim, we think
Kmart could easily find itself faced with a mountain of such
claims, with a corresponding price tag in the millions of
dollars. Perhaps this would be a different case had
Simmons’s claim only asserted, say, $75,000 or $80,000 in
damages. In any event, the bankruptcy court knew the total
number of claims against Kmart, and still found that
Simmons’s claim was “no small amount.” It was in the best
position to assess the relative size of Simmons’s claim, and
she has presented us with no reason here to disturb that
judgment.
No. 03-4084 7
To conclude, although we do not find the bankruptcy
court’s reasoning overwhelmingly persuasive, because, at a
minimum, reasonable minds could disagree as to the potential
for harm to Kmart as a result of Simmons’s delay, and
given that it was Simmons’s burden to prove a lack of
prejudice to Kmart and not the inverse, we cannot say the
bankruptcy court’s finding as to this Pioneer factor was
clear error.
2. Length of the delay and its impact on judicial
proceedings
Simmons’s proof of claim was only one day late, a fact
which seems to support the grant of her Rule 9006(b)
motion. However, the bankruptcy court not only considered
this one-day delay, but also how long it took Simmons to get
around to requesting judicial relief. A total of eighty-one days
lapsed between the Original Bar Date and Simmons’s filing
of her 9006(b) motion. Although Simmons could have easily
ascertained whether her proof of claim made it from the
Virgin Islands to the mainland United States on time by
either including a self-addressed stamped envelope with her
proof of claim (as the claim form encouraged claimants to
do) or by making a follow-up phone call to Trumbull, she
chose not to do so. In fact, Simmons didn’t realize that her
filing was late until she received a notice from Kmart, fifty-
three days after the Original Bar Date. Even more perplex-
ing, Simmons waited an additional twenty-eight days to
make her Rule 9006(b) motion. The bankruptcy court was
well within its province to consider the total eighty-one day
period of delay, as the court may consider “all relevant
circumstances” in its excusable neglect analysis. Pioneer,
507 U.S. at 395.
Simmons makes much of three late-filed administrative
claims also involved in the Kmart Chapter 11 proceedings,
with delays somewhat similar to Simmons’s, which the bank-
8 No. 03-4084
ruptcy court allowed. However, Simmons failed to include
the court’s unpublished orders addressing these claims in
her appendix to this court, and as such, we cannot verify
the veracity of her argument. Cf., Le Beau v. Libby-Owens-
Ford Co., 727 F.2d 141, 147 (7th Cir. 1984) (parties relying
on an unpublished order included such in appendix);
Chrapliwy v. Uniroyal, Inc., 670 F.2d 760, 763 n.4 (7th Cir.
1982) (same). Hence, we do not address it further except to
say that these claims are distinguishable from Simmons
because, according to her own brief, the three administra-
tive claimants’ Rule 9006(b) motions were not as tardy as
Simmons’s (two filing seventy days after the bar date, and
one forty-eight days later).
Simmons also points to the fact that at the time of her
Rule 9006(b) motion, the Supplemental Bar Date had not
yet passed. But the due process concerns which necessitated
the Supplemental Bar Date are not at all applicable to
Simmons, see infra Part II.B.
Regardless, bar orders serve an indisputably integral
purpose in facilitating reorganizations. The Second Circuit
put it well:
A bar order serves the important purpose of enabling
the parties to a bankruptcy case to identify with rea-
sonable 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. . . . If individual creditors
were permitted to postpone indefinitely the effect of a
bar order so long as adversary proceedings were pend-
ing, the institutional means of ensuring the sound admin-
istration of the bankruptcy estate would be undermined.
In re Hooker Invs., Inc., 937 F.2d 833, 840 (2d Cir. 1991).
Therefore, we conclude that the bankruptcy court’s finding
as to the length of delay and its concomitant negative im-
pact on judicial proceedings was not clear error.
No. 03-4084 9
3. Reason for the delay
Simmons states in her brief to this court that “[t]he rea-
son for the delay . . . was nothing more than an innocent
mistake in mailing the claim.” In particular, Simmons points
to the mail clerk’s inadvertent selection of second-day delivery
(rather than next-day) on the mailing instructions. Kmart
counters that the mail clerk was forced to choose the second-
day delivery option because the clerk arrived—whether by his
or her own dereliction of duty or otherwise—at the post office
after two o’clock in the afternoon and next-day delivery
could not be guaranteed. Under either scenario, Simmons
correctly characterized it as a reason for the delay. But we
think it a poor one.
Three of our sister circuits have held that fault in the
delay is the preeminent factor in the Pioneer analysis. See
United States v. Torres, 372 F.3d 1159, 1163 (10th Cir. 2004)
(quoting City of Chanute v. Williams Natural Gas Co., 31
F.3d 1041, 1046 (10th Cir. 1994) (“fault in the delay remains
a very important factor—perhaps the most important single
factor—in determining whether neglect is excusable.”));
Graphic Communications Int’l Union v. Quebecor Printing
Providence, Inc., 270 F.3d 1, 5 (1st Cir. 2001) (“We have ob-
served that the four Pioneer factors do not carry equal
weight; the excuse given for the late filing must have the
greatest import.” (internal quotation marks and bracket
omitted)); Lowry v. McDonnell Douglas Corp., 211 F.3d 457,
463 (8th Cir. 2000) (same). Although we have not yet sim-
ilarly held, see United States v. Brown, 133 F.3d 993, 996 (7th
Cir. 1998), in this case, the factor is immensely persuasive.
First, Simmons’s counsel left the filing of her proof of
claim until the latest possible time. Second, Simmons’s
attorney delegated the mailing responsibilities to a clerk.
And counsel took no steps to follow up with the clerk to
ensure that the proper procedures were used. Third, and as
we referenced above, Simmons could have taken at least
10 No. 03-4084
two simple measures to verify that her proof of claim ar-
rived on time. We agree with the bankruptcy and district
courts—the delay in filing Simmons’s proof of claim was
entirely within her control. Put more directly, it was her
own fault.2 The bankruptcy court’s finding as to this factor
was not clear error.
4. Simmons’s good faith
There is no dispute that Simmons attempted to file her
proof of claim on time. However, we agree with the district
court that “[i]t is not difficult to imagine stronger showings
of good faith.”3 As we have highlighted above, Simmons’s
counsel left the filing of her proof of claim until the pro-
verbial “eleventh hour,” failed to follow up with the third-
party claims processing agency to determine if the claim
arrived on time, and then, after discovering that her proof
of claim arrived after the deadline, waited nearly a month
before seeking judicial relief. These efforts cannot be called
extraordinary or even particularly diligent. Consequently,
we find that this factor is inconclusive; it neither supports
nor undercuts the bankruptcy court’s ultimate determina-
tion.
To summarize our findings, the bankruptcy court’s factual
determinations as to each of the Pioneer factors it analyzed
2
As a general proposition and the for the purposes of the Rule
9006(b) “excusable neglect” analysis at issue here, the failings of
the attorney may be attributed to the party. Pioneer, 507 U.S. at
396-97, cited in In re Scheri, 51 F.3d 71, 75 (7th Cir. 1995).
3
The bankruptcy court made no express findings as to the good
faith factor in its Pioneer analysis. Such an omission by the bank-
ruptcy court does not, as Simmons suggests, necessitate that we
remand for consideration of this factor. Our analysis demonstrates
that the bankruptcy court did not abuse its discretion when it de-
nied Simmons’s Rule 9006(b) motion.
No. 03-4084 11
were not clear error. As such (and because the fourth factor,
good faith, which was not addressed by the bankruptcy
court, neither strongly hinders or helps Simmons’s cause),
we conclude that the court’s decision to deny Simmons’s Rule
9006(b) motion was not an abuse of discretion. Moreover, even
if we did take issue with the bankruptcy court’s determination
as to the prejudice component (the only factual finding
remotely questionable), given Simmons’s reticence in
rectifying the impact of the “innocent mistake” and that
ultimately this mistake is attributable to no one except
Simmons, the Pioneer factors would then be at an equipose,
thus necessitating our affirmance of the bankruptcy court’s
ruling. Neither approach reveals any abuse of the bank-
ruptcy court’s discretion.
B. Motion to Apply the Supplemental Bar Date to
Simmons’s Claim
As required, Kmart initially sent notice of the Original
Bar Date to approximately one million potential claimants,
including those listed on Kmart’s schedules of liabilities
(which are filed with the bankruptcy court) and numerous
others, who were unlisted.4 After Kmart learned that it had
inadvertently failed to send notice of the Bar Date to
approximately 4,000 claimants, most of whom did not ap-
4
Kmart explained that when it sent out this initial notice, its ob-
jective was to “make extra sure that we had noticed the world as
broadly as possible,” including not only clearly legitimate claimants,
but also those Kmart believed had “no basis on which they could be
construed creditors.” Hence, notice was sent to both scheduled and
unscheduled putative claimants. Kmart further explained that
had it attempted to include all of these million possible claimants
on the schedules which it filed with the bankruptcy court, such
schedules would have been “about 100,000 pages long.” Since, in
Kmart’s view, such a filing would be impracticable, none was at-
tempted.
12 No. 03-4084
pear on Kmart’s schedules, Kmart petitioned the bank-
ruptcy court to establish the Supplemental Bar Date in an
effort to rectify any due process problems—namely, that
claimants without notice of Kmart’s bankruptcy and the
Bar Date might have irretrievably forfeited their rights.
The bankruptcy court did so.
After Simmons’s Rule 9006(b) motion was denied, she
attempted to gain the benefit of the Supplemental Bar
Date. The bankruptcy court denied this request as well,
reasoning that Simmons should not be given a “second bite
of the apple” because her attorney indisputably had actual
knowledge of the Original Bar Date. In so ruling, the bank-
ruptcy court in effect construed the meaning of its prior
order establishing the Supplemental Bar Date. As such and as
we stated earlier, we review the court’s denial of Simmons’s re-
quest only for an abuse of discretion. See Taylor v. Prudential
Sec. Inc. (In re VMS Sec. Litig.) (In re VMS Ltd. P’ship Sec.
Litig.), 103 F.3d 1317, 1321 (7th Cir. 1996) (citing cases); In
re Weber, 25 F.3d at 416.
Given our circumscribed review, we conclude without dif-
ficulty that the bankruptcy court did not abuse its discre-
tion. In that Simmons was not listed on any of Kmart’s
schedules and never physically received notice of the Bar
Date from the debtor (we assume arguendo), she was like
many of the creditors to whom the Supplemental Bar Date
applied. Nonetheless, she is distinguishable in one key
respect. Simmons’s counsel had actual knowledge of the
Original Bar Date. And the attorney’s knowledge is chargeable
to the client. Irwin v. Dept. of Veterans Affairs, 498 U.S. 89,
92 (1990). See also Pioneer, 507 U.S. at 396-97; In re
Longardner & Assocs., Inc., 855 F.2d 455, 459 (7th Cir. 1988).
In addition and as we noted above, the Supplemental Bar
Date was established to alleviate potential due process prob-
lems. But because Simmons and her attorney both had
knowledge of the Original Bar Date, there was no such due
process concern with respect to Simmons. The bankruptcy
No. 03-4084 13
court’s reasoning was sound, and its ruling was not an abuse
of discretion.
III. Conclusion
For the foregoing reasons, we AFFIRM the judgment of the
district court.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—8-27-04