Enjet, Inc. v. Maritime Challenge Corp., Civ.A. No. 96-3419.

• Citation: 220 BR 312
• Decision Date: 07 May 1998
• Docket Number: Civ.A. No. 96-3419.
• Parties: ENJET, INC. v. MARITIME CHALLENGE CORP. In re ENJET, INC.
• Court: U.S. District Court — Eastern District of Louisiana

220 B.R. 312 (1998)

ENJET, INC. v. MARITIME CHALLENGE CORP.

In re ENJET, INC.

Civ.A. No. 96-3419.

United States District Court, E.D. Louisiana.

May 7, 1998.

Betty Finley Mullin, Chaffe, McCall, Phillips, Toler & Sarpy, L.L.P., New Orleans, LA, for Maritime Challenge Corp.

John Michael Duck, Adams & Reese, Emile Louis Turner, Jr., Turner, Young, Hebbler & Babin, New Orleans, LA, for Enjet Inc.

ORDER AND REASONS

FELDMAN, District Judge.

Before the Court is creditor-appellant Maritime Challenge Corp.'s appeal in the bankruptcy case of In re Enjet, Inc. Maritime Challenge seeks review of the September 23, 1996 Order of the United States Bankruptcy Court for the Eastern District of Louisiana granting debtor-appellee Enjet, Inc.'s Motion for Leave to File Amended Objection. For the reasons that follow, the judgment of the bankruptcy court is reversed.

Background

Enjet, Inc. filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code on January 3, 1995. On April 3, 1995, Maritime Challenge filed an itemized Proof of Claim for $319,133.78 it claimed Enjet owed in connection with Enjet's charter of the S/S COVE TRADER from Maritime.¹ Of this amount, $180,000 represented a vessel cleaning charge for work performed between October 3 and October 16, 1994.

On October 27, 1995, the bankruptcy court confirmed Enjet's First Amended Plan of Reorganization, which contained a claim objection deadline of 90 days following entry of the confirmation order. The court's order on November 6, 1995 set a February 5, 1996 deadline for filing objections to claims.

On the day of the deadline, Enjet filed an objection to Maritime Challenge's claim solely on the following basis: Maritime Challenge unilaterally set-off $175,074.89 from a total indebtedness of $494,208.67 owed by Enjet after confirmation, and therefore violated Enjet's automatic stay.² Although the court sustained Enjet's objection on April 3, 1996, it later granted Maritime Challenge's Motion for Reconsideration/New Trial and vacated its prior ruling.

On August 22, 1996, Enjet filed a motion for leave to filed an amended objection to Maritime Challenge's Proof of Claim. Enjet objected, for the first time, to the $180,000 cleaning charge Maritime Challenge had assessed, maintaining that "it was not contractually or otherwise obligated to Maritime Challenge for costs incurred to clean the holds of the S/S COVE TANKER." Alternatively, Enjet urged it was "not obligated or responsible for the cost of cleaning since only certain contractually permitted products were carried on the vessel." Maritime Challenge opposed the motion for leave to file the amended objection; the lapse of the February 5 deadline, it contended, rendered any new objections time-barred. The bankruptcy court granted Enjet's motion, finding that the amendment related back to the filing date of the original objection and was timely. Further, the court ruled, the objection had not been set for trial, obviating any prejudice to Maritime Challenge. Maritime Challenge timely appealed the bankruptcy court's September 23, 1996 order.

Law And Application

I. Standard of Review³

This Court functions as an appellate court when reviewing a bankruptcy court's decision. See Webb v. Reserve Life Ins. Co., 954 F.2d 1102, 1103 (5th Cir.1992). The standard of review depends on whether a finding of fact or conclusion of law is at issue. Bankruptcy Rule 8013 instructs that a bankruptcy court's findings of fact "shall not be set aside unless clearly erroneous." See also Webb, 954 F.2d at 1103. Conversely, the bankruptcy court's conclusions of law "are freely reviewable on appeal." Wilson v. Huffman (In re Missionary Baptist Foundation of America), 818 F.2d 1135, 1142 (5th Cir.1987), quoting In re Multiponics, Inc., 622 F.2d 709, 713 (5th Cir.1980). To the extent equitable considerations govern a bankruptcy court's decision to allow amendments to objections to proofs of claim, such a decision is reviewed for abuse of discretion. See In re Kolstad, 928 F.2d 171, 173 (5th Cir.), cert. denied, 502 U.S. 958, 112 S.Ct. 419, 116 L.Ed.2d 439 (1991)(reviewing bankruptcy and district courts' equitable allowance of amendments to proof of claim under the abuse of discretion standard). In this case, Maritime Challenge's assertion of error on appeal infers the de novo standard of review with respect to the bankruptcy court's relation back analysis, and the abuse of discretion standard for its determination regarding prejudice. See Wilson, 818 F.2d at 1142; In re Kolstad, 928 F.2d at 173.

III. Analysis

A. Relation Back of Enjet's Amended Objection

Maritime Challenge first contends that the bankruptcy court mistakenly held that Enjet's otherwise untimely amended objection related back to its original objection to Maritime Challenge's proof of claim. The defense asserted in the amended objection, Maritime Challenge argues, does not arise out of the "conduct, transaction, or occurrence set forth . . . in the original pleading," the trigger for relation back under Fed.R.Civ.P. 15(c).⁴ Enjet responds in several respects: (1) Bankruptcy Rule 7015 (and consequently Rule 15(c)) does not apply because an objection to a proof of claim initiates only a "contested matter," not an "adversary proceeding;" (2) the amended objection is a specific challenge to the proof of claim that relates back to the general objection that was timely made.

Initially, the Court determines that Rule 7015 and Rule 15(c) apply to this case. Enjet correctly points out that "the filing of an objection to a proof of claim . . . is a contested matter," not an adversary proceeding. See Advisory Committee Note to Bankruptcy Rule 9014; In re Calisoff, 94 B.R. 1002, 1004 n. 2 ("An objection to a claim does not give rise to an adversary proceeding (unless the objection seeks relief other than disallowance of the claim), but to a contested matter."). However, several factors counsel in favor of Rule 7015 and Rule 15(c)'s application. First, a "court may at any stage in a particular matter direct that one or more of the other rules in Part VII which includes Rule 7015 shall apply." See Bankruptcy Rule 9014. Second, both parties have invoked Rule 7015: Maritime Challenge explicitly urges its application, and Enjet based its request for leave to file the amended objection upon it. See In re Stavriotis, 977 F.2d 1202, 1204 (7th Cir.1992) (applying relation back doctrine to contested matter partly because "the district court applied Rule 7015 and both parties agree that this Court should apply Rule 7015 as well"). Finally, numerous courts have applied Rule 7015 and Rule 15(c) explicitly or by analogy in non-adversary proceedings. See, e.g., id. at 1206 n. 4; In re Unroe, 937 F.2d 346, 349 (7th Cir.1991); In re Limited Gaming of America, Inc., 213 B.R. 369, 373 n. 3 (Bankr.N.D.Okla.1997); In re Best Refrigerated Express, Inc., 192 B.R. 503, 506 (Bankr.D.Neb.1996); In re Blue Diamond Coal Co., 147 B.R. 720, 725 (Bankr. E.D.Tenn.1992), aff'd, 160 B.R. 574 (E.D.Tenn.1993); In re City of Capitals, Inc., 55 B.R. 634, 637 (Bankr.D.Md.1985). For these reasons, the Court finds the relation back doctrine applies to Enjet's amended objection.⁵

Applying these rules, the Court is not persuaded that the amended objection relates back to its timely predecessor. Enjet's defense in the amended objection simply cannot be reconciled with its position in the original objection. Enjet originally conceded its $494,208.67 indebtedness to Maritime Challenge, objecting only to what it considered was an invalid post-petition set-off. In contrast, the amended objection attacked the validity of a specific charge for cleaning. The flat inconsistency between the original and amended objection precludes relation back.⁶ See also In re Solari, 63 B.R. 115, 117 (9th Cir. BAP 1986) (rejecting an amended proof of claim's relation back because it "does not purport to cure a defect in the timely filed claim, nor does it describe the original claim with greater particularity"); In re International Horizons, Inc., 751 F.2d 1213, 1216 (11th Cir.1985) (rejecting relation back of an amendment whose purpose was not "to cure a defect in the claim as originally filed, to describe the claim with greater particularity or to plead a new theory of recovery on the facts set forth in the original claim"). Conceptually, relation back in this context should be defined by some traceable relationship to the same bundle of facts that initiated the...