In re Charter Co.
| Decision Date | 10 January 1991 |
| Docket Number | No. 89-49-Civ-J-16.,Bankruptcy No. 84-289-BK-J-GP through 84-332-BK-J-GP,and 85-1033-BK-J-GP,89-49-Civ-J-16. |
| Parties | In re the CHARTER COMPANY, et al., Debtors. CHARTER CRUDE OIL COMPANY, Appellant, v. PETROLEOS MEXICANOS, Appellee. |
| Court | U.S. District Court — Middle District of Florida |
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James H. Post, Smith & Hulsey, Jacksonville, Fla., for appellant.
Levin & Weintraub & Crames, New York City, for debtors.
Earl M. Barker, Jr., Slott & Barker, Jacksonville, Fla., Alfredo R. Perez, Bracewell & Patterson, Houston, Tex., Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C., for appellee.
This cause is before the Court on the Charter Crude Oil Company's (hereinafter "Charter" or "CCOC") appeal from the December 29, 1986 and November 23, 1988 rulings of the United States Bankruptcy Court for the Middle District of Florida, filed March 20, 1989. Petroleos Mexicanos (hereinafter "Pemex") filed a response on March 31, 1989; Charter then filed a reply brief on April 24, 1989.
Two main issues are presented in this appeal: (1) whether the court below erred in ruling that Pemex was a known creditor entitled to actual notice of the bar date in the Charter bankruptcy proceeding in accordance with due process of law; and, (2) whether the court below erred in interpreting the Pemex/Charter contract to allow Pemex's proof of claim. Because this Court finds that the bankruptcy court failed to determine whether Charter could reasonably have believed that Pemex had abandoned its claim (in which case Pemex would stand as an "unknown" creditor entitled only to publication notice of the bar date), and failed to determine whether reasonably diligent efforts would have uncovered Pemex's claim, this case shall be reversed and remanded for a new trial to determine whether Pemex was a known or unknown creditor of Charter. The Court does not reach the second issue raised on appeal.
The relevant facts in this case, as found by the bankruptcy court, are as follows. In 1981 the parties entered into a sales contract for the purchase of crude oil by Charter from Pemex. Delivery of the crude oil took place on a monthly basis at Pemex's facilities in Mexico. Between May 31, 1981 and June 3, 1981, Charter took delivery of 397,326 barrels of crude oil from Pemex (hereinafter the "June Lifting"). Subsequently, Pemex issued an invoice in the amount of $13,780,237 which purported to document the delivery.
On June 3, 1981, Pemex reduced its crude oil prices by $4.00 per barrel; this price reduction was made "effective June 1, 1981" by Pemex. The disputed invoice did not document the price reduction. Charter paid for the delivery by an amount $1,589,304 less than the invoice, because it presumptuously considered the $4.00 per barrel price reduction to apply to the May 31-June 3 delivery. Pemex disputed Charter's interpretation of the price reduction's applicability, asserting that it was due the $1,589,304.
During late 1981, both parties attempted to reconcile the situation. On December 30, 1981, Pemex sent a telex to Charter requesting payment. No payment was made, and Pemex took no further action to obtain payment, either through a new demand or by instituting legal proceedings, until Pemex filed a motion for enlargement of time to file its claim in the bankruptcy proceedings on June 30, 1986. Charter contends that it believed the dispute was resolved in 1982 without further liability to Charter, and that at a minimum Pemex's inaction over this four and one-half year period led Charter to reasonably believe that Pemex had abandoned its claim.
Charter filed for relief under 11 U.S.C. Chapter 11 on April 20, 1984. Charter did not list Pemex as a creditor in the schedule of assets and liabilities it filed in the bankruptcy proceeding, nor did Charter amend the schedule to include Pemex as a creditor at a later date. As a result, Pemex received no prior notice of the bar date of November 19, 1984 for filing proofs of claims in order to participate in the voting on and distribution through the plan of reorganization. Notice of the bar date was published in the Wall Street Journal and in other newspapers1 on August 15, 1984. Pemex first received formal notice of the bankruptcy proceeding through service of a summons and complaint for turnover in April, 1986. The bankruptcy court further found that, although Pemex employees in New York City and Washington, D.C. were responsible for collecting information regarding energy-related matters, no proof exists that a Pemex representative who knew of the dispute over the $1,589,304 had actual knowledge of the Charter bankruptcy proceeding.
The court below also heard testimony from two Charter employees that the dispute over the $1,589,304 was resolved in early 1982. These employees stated that they were generally aware of the price dispute (although they were not specifically involved in the subject contract and the dealings with Pemex), and that they each believed the dispute had been resolved because the subject of the dispute had never come up in any of the business discussions they personally had with Pemex representatives. The court below was not persuaded by this testimony that the dispute had been resolved, although the court made no finding as to whether this or other evidence showed that Charter could reasonably have believed that Pemex had abandoned its claim, that Charter knew or should have known of the claim despite Pemex's lengthy silence on the subject, or that a reasonably diligent search by Charter would have uncovered Pemex's claim.
The bankruptcy court held that Pemex was a known creditor of Charter entitled to formal, actual notice of the bar date. The court cited little evidence to support its conclusion that Pemex was a known creditor, except for the finding that "at the time Charter filed its schedules of assets and liabilities, it knew that there was at least a possibility of a claim being made by Pemex." See Order of the Bankruptcy Court, Dec. 29, 1986. 68 B.R. 396, 398. The court also held that publication notice could not be justified where the bar date was publicized only once, and where Pemex, a foreign corporation, would not necessarily subscribe to the publications in which the notice appeared. Id. at 398-99. Accordingly, the court granted Pemex's motion to file its proof of claim after the bar date.
This Court sits as an appellate court in reviewing decisions of the bankruptcy court. Bankr.Rule 8013 (1984). Factual findings of the bankruptcy court may not be set aside unless they are clearly erroneous. See In re Martin, 761 F.2d 1163, 1165 (6th Cir.1985); U.S. v. Owens, 84 B.R. 361, 363 (E.D.Pa.1988). Conclusions of law are reviewed de novo. Matter of Multiponics, 622 F.2d 709, 713 (5th Cir. 1980). The admission of evidence is committed to the sound discretion of the bankruptcy court. Miller v. Universal City Studios, Inc., 650 F.2d 1365, 1374 (5th Cir. 1981). Accordingly, evidentiary decisions of the bankruptcy court are subject to review under an abuse of discretion standard.
It is well-settled that "an elementary and fundamental requirement of due process in any proceeding which is to be accorded finality 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 claims." Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950). In determining the constitutional adequacy of notice, Mullane made clear that "whether a particular method of notice is reasonable depends upon the particular circumstances." Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478, 108 S.Ct. 1340, 1344, 99 L.Ed.2d 565 (1988).
The circumstances presented in this case involve the rules for Chapter 11 bankruptcy proceedings conducted in the federal bankruptcy courts. Bankruptcy Rule 3003(c)(3) requires the bankruptcy court to establish a bar date for filing proofs of claim: all creditors must file proofs of claim before this bar date, and extensions are granted only for cause. Bankruptcy courts are required to enforce the bar date strictly so that the objective of finality in bankruptcy proceedings may be furthered. See Hoos & Co. v. Dynamics Corp. of America, 570 F.2d 433, 439 (2nd Cir.1978); In re Charter Co., 113 B.R. 725, 728 (M.D.Fla.1990) (citing In re Kay Homes, Inc., 57 B.R. 967 (Bankr.S.D.Tex. 1986)). Confirmation of a Chapter 11 plan discharges the debtor from all debts which arose before the confirmation date. See Charter, 113 B.R. at 728.
Bankruptcy law divides creditors into two groups when determining the proper notice to be given of the upcoming bar date: known and unknown creditors. Due process requires that the debtor's known creditors be given actual notice of the bar date. See City of New York v. New York, New Haven & Hartford R.R., 344 U.S. 293, 73 S.Ct. 299, 97 L.Ed. 333 (1953). However, unknown creditors are entitled to mere publication notice of the bar date. See Matter of GAC Corp., 681 F.2d 1295, 1300 (11th Cir.1982).
As the court below noted, the legal determination of whether a creditor is known or unknown to the debtor is not a simple one. However, the Supreme Court has provided some guidance in analogous contexts. Unknown creditors include those whose identities or claims are not "reasonably ascertainable" and those who have merely conceivable, conjectural,2 or speculative claims. See Pope, 108 S.Ct. at 1347; Matter of GAC Corp., 681 F.2d at 1300. It is reasonable to dispense with actual notice to these unknown creditors, provided that the debtor makes "reasonably diligent efforts" to uncover their identities and claims. See id. at 1347 (quoting Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 798 n. 4, 103 S.Ct. 2706, 2711 n. 4, 77 L.Ed.2d 180 (1983))....
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