In re Dartmoor Homes, Inc.
| Decision Date | 26 October 1994 |
| Docket Number | Bankruptcy No. 94 B 00963. |
| Citation | 175 BR 659 |
| Parties | In re DARTMOOR HOMES, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Melanie Rovner Cohen, Faye B. Feinstein, Altheimer & Gray, Chicago, IL, for Ziebell Water Service.
Steven B. Towbin, David Newberry, D'Ancona & Pflaum, Chicago, IL, for Committee.
Sheldon Solow, Sachnoff & Weaver, Chicago, IL, for debtor.
This matter is before the Court on a Motion for Reconsideration brought by Ziebell Water Service Products, Inc.1 In this motion, Ziebell requests the Court to reconsider its order denying Ziebell's motion for Leave to File Proof of Claim Instanter filed several weeks after the date set by the Court by which claims had to be filed. See 11 U.S.C. § 1111(a); Fed.R.Bankr.P. 3003. The Official Committee of Unsecured Creditors opposes Ziebell's present motion. The Court has conducted an evidentiary hearing. As a result of the evidence adduced at that hearing, this Court finds itself required to answer the following question: when a debtor and a creditor both fail to defend their interests zealously and both neglect their obligations under relevant bankruptcy law, which party must bear the ultimate responsibility? For the reasons stated below, the Court finds that in this circumstance, the Debtor is primarily responsible for Ziebell's failure to file its proof of claim prior to the bar date. Therefore, the Court grants Ziebell's Motion for Reconsideration, and the Court will order Ziebell's proof of claim to be deemed to be timely filed.
The essential facts are not in dispute. On September 9, 1993, Ziebell filed a complaint against Dartmoor Homes, Inc. ("Dartmoor", "the Debtor") in the Circuit Court of Cook County, Chancery Division, Ziebell Water Service Products, Inc. v. Dartmoor Homes, Inc., Case No. 93 CH 08057. This complaint sought recovery from Dartmoor on a theory of promissory estoppel, claiming damages of $200,255.53.2 Dartmoor was served with Ziebell's complaint on September 23, 1993. The Circuit Court of Cook County entered a default judgment on November 5, 1993. Dartmoor did not seek to have the judgment vacated.
Dartmoor filed a voluntary petition for relief under Chapter 11 on January 18, 1994. Ziebell was not listed as a creditor in Dartmoor's schedules of creditors, a circumstance which attorneys for Dartmoor have described as an "oversight."3 However, Ziebell is listed on Attachment VII to Dartmoor's schedules which lists "Suits, Executions, Garnishments and Attachments."4
The United States Trustee appointed the Official Committee of Unsecured Creditors ("Creditors' Committee") on February 3, 1994. The Creditors' Committee filed a motion on February 17, 1994 seeking an order fixing a bar date for creditors to file proofs of claim. See Fed.R.Bankr.P. 3003(c)(3). The Court originally set April 15, 1994 as the bar date. That date was subsequently extended by the Court to May 31, 1994.5
Since Ziebell was not scheduled as a creditor in Dartmoor's schedules, it was given no notice of the proceedings leading to the fixing of a bar date. Ziebell only was apprised of Dartmoor's bankruptcy after Edward Freud, an attorney for Ziebell, heard a report on the radio about the bankruptcy in mid-February of 1994. Freud immediately informed Ziebell about the bankruptcy. Ziebell instructed Freud to file a proof of claim. Freud ordered his associate, John Plattner, to investigate the details of Dartmoor's bankruptcy and to file the proof of claim. Plattner contacted a representative of one of Dartmoor's housing developments, who gave him the phone number of Matthew Gensburg, one of Dartmoor's bankruptcy attorneys. Plattner called Gensburg and told him about Ziebell's pre-petition default judgment against Dartmoor. Plattner made copies of Dartmoor's bankruptcy file on February 22 and February 25, 1994 and reviewed the file on March 1, 1994. In spite of the fact that Freud and Plattner knew that Ziebell was not scheduled as a creditor, neither Freud nor Plattner checked the court file or docket at any time after March 1, 1994. In addition, neither Freud nor Plattner ever filed a proof of claim, nor did they seek to compel Dartmoor to amend its schedules, nor did they seek any other relief on behalf of their client.
In fact, Ziebell and its counsel took no further action whatsoever to protect Ziebell's claim against Dartmoor until June 15, 1994, when Plattner contacted Ira Bodenstein, an attorney for the Creditors' Committee, to determine the status of the case.6 Bodenstein informed Plattner that the time for filing claims in the Chapter 11 case had expired on May 31, 1994, the claims bar date set by the Court.
Plattner filed a motion for Leave to File Proof of Claim Instanter on June 16, 1994. The motion alleged that Ziebell had received none of the notices sent to creditors in the Chapter 11 case, and that Ziebell first learned of the May 31, 1994 bar date on June 15, 1994. The motion did not disclose Ziebell's knowledge of the pendency of Dartmoor's Chapter 11 case, dating back to February, 1994.
The Court heard and denied Ziebell's motion on June 24, 1994. The Court based its decision upon the fact that Ziebell's attorneys had actual knowledge of Dartmoor's bankruptcy for several months, and therefore had ample opportunity to protect Ziebell's interests by filing a timely proof of claim. Transcript June 24, 1994, p. 10. The Court was also disturbed that Ziebell's motion failed to disclose that Ziebell had been aware of Dartmoor's bankruptcy case for several months before the bar date. Transcript, June 24, 1994, p. 12.
On July 5, 1994, Ziebell moved for reconsideration of the Court's denial of Ziebell's motion for leave to file a proof of claim instanter. The Creditors' Committee opposed Ziebell's motion to reconsider.7 The Court held an evidentiary hearing on September 29, 1994.
This Court has jurisdiction over this matter under 28 U.S.C. § 1334(b) as a matter arising under §§ 501 and 502 of the Bankruptcy Code. This matter is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A)(B), and (O) and is before the Court pursuant to Local Rule 2.33 of the United States District Court for the Northern District of Illinois referring bankruptcy cases and proceedings to this Court for hearing and determination. Venue is proper pursuant to 28 U.S.C. § 1409(a).
The Court has broad discretion to redetermine the status of a claim at the request of a party in interest at any time "for cause". See 11 U.S.C. § 502(j); Fed.R.Bankr.P. 3008. Clearly, Ziebell is a party in interest, see 11 U.S.C. § 1109, and has standing to move for reconsideration on a claim.8 Neither the Bankruptcy Code nor the Federal Rules of Bankruptcy Procedure define what constitutes "cause" for these purposes.
Fed.R.Bankr.P. 9023 and 9024 import Fed.R.Civ.P. 59 and 60, respectively, into the bankruptcy process with some modification.9 Where a party brings a motion for reconsideration within ten days of the entry of the Court's order allowing or disallowing the claim, the reconsideration process is governed by Fed.R.Civ.P. 59 as modified by Fed.R.Bankr.P. 3008.10 Charles v. Daley, 799 F.2d 343 (7th Cir.1986). Therefore, the Court can grant Ziebell's motion if the movant shows there was a mistake of law or fact or presents newly discovered evidence that could not have been discovered previously. Deutsch v. Burlington Northern Railroad Co., 983 F.2d 741 (7th Cir.1992) cert. denied, ___ U.S. ___, 113 S.Ct. 1845, 123 L.Ed.2d 470 (1993).
In its initial ruling, the Court would not deem Ziebell's late claim to be timely filed after the Court was informed that Ziebell discovered that Dartmoor filed a bankruptcy petition shortly after the inception of the case, yet had taken no steps to protect its rights in the bankruptcy case and had failed to disclose its knowledge of the bankruptcy in its motion. No evidence was presented by the parties. The Court ruled on the motion summarily from the bench.
After carefully reviewing the transcript of the initial hearing, the Court has concluded that it did not consider all relevant issues of fact and law in ruling on the motion.11 Most significantly, the Court did not consider Dartmoor's failure to notify a known creditor of the bar date and the potential impact of this fact on the status of the motion.
A creditor in a chapter 11 case is not necessarily required to file a proof of claim. If a claim is scheduled as undisputed, liquidated, and noncontingent, the creditor either can accept the amount scheduled as the amount of its claim or may file a claim asserting another amount. 11 U.S.C. §§ 501, 1111(a); Fed.R.Bankr.P. 3003. However, if a debtor's schedules list a claim as contingent, disputed, or unliquidated, or if the claim is omitted from the schedules altogether, the creditor must file a timely proof of claim to be treated as a creditor for purposes of voting and distribution. 11 U.S.C. § 1111(a); Fed.R.Bankr.P. 3003(c)(2).12 If a scheduled creditor does not file a timely proof of claim when it is required to do so, that creditor is in the worst of all worlds: it cannot participate in plan voting, will receive no distributions under the plan, and will have its claim discharged, should the debtor receive a discharge. Fed.R.Bankr.P. 3003(c)(2). Unlike in a Chapter 7 case, a creditor that fails to file a required proof of claim in a Chapter 11 case does not even get a subordinated claim against the debtor. Compare 11 U.S.C. § 726; Fed.R.Bankr.P. 3003(c)(2). Instead, in effect the late claim simply no longer exists for purposes of the Chapter 11 case.
In theory, the same rule applies to unscheduled creditors. Ziebell was not listed on Dartmoor's schedule of...
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