In re Dix
| Decision Date | 30 December 1988 |
| Docket Number | Bankruptcy No. 8404027-P11.,BAP No. SC-88-1017 JASV |
| Citation | 95 BR 134 |
| Parties | In re Charles and Martha DIX, Debtors. Charles and Martha DIX, Appellants, v. Theodore JOHNSON, Jr., Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Diane H. Sparrow, Ravreby & Shaner, Carlsbad, Cal., for appellants.
Eric V. Benham, Sullivan, Delafield, McDonald & Middendorf, San Diego, Cal., for appellee.
Before JONES, ASHLAND and VOLINN, Bankruptcy Judges.
The Debtors appeal a bankruptcy court order granting a creditor's motion for an extension of time in which to file a proof of claim. For the following reasons, we AFFIRM.
The Appellants, Charles and Martha Dix ("Debtors"), filed a Chapter 11 petition on September 19, 1984. The Appellee, Theodore Johnson ("Johnson"), filed a Chapter 11 petition on February 22, 1985. Attorney Joe N. Turner ("Turner") represented both the Debtors and Johnson in their respective bankruptcy proceedings until December 18, 1986, when Turner withdrew from the Dix case. Turner has continued to represent Johnson in his Chapter 11 case.1
Prior to the filing of both bankruptcy petitions, Charles Dix and Theodore Johnson had both a business and personal relationship. Johnson is a building contractor and had first met Dix when he was hired to build Dix's house. In 1972 Johnson and Dix jointly purchased a house which was eventually lost through foreclosure. Johnson contends that between 1972 and 1983 he gave Dix nearly $100,000 for various partnership investments which Dix managed.
Between 1977 and 1983 Johnson operated a construction business known as Johnson Construction Company. The business was organized as a partnership between Johnson and Arthur Schulman. According to Johnson, Schulman handled the management and finances of the business and Johnson oversaw the actual construction. Johnson contends that when Schulman died in 1983, he retained Dix to handle the financial matters of the business.
After Schulman's death, Turner undertook the representation of both Dix and Johnson in winding up the affairs of the construction business. In 1985 Dix and Johnson were sued by Jack Tollenaar, the executor of Schulman's estate, for an accounting and for monies allegedly due arising out of their activities in operating the construction business after Schulman's death. Turner represented both Dix and Johnson in this lawsuit. Johnson contends that over the course of the litigation against Tollenaar, he acquired information indicating that Dix had mismanaged the finances of the construction business and had taken as much as $100,000 out of the business for his own purposes.
The Debtors had not listed Johnson as a creditor in the schedules accompanying their Chapter 11 petition. The bar date for filing complaints objecting to dischargeability was December 25, 1984. The bar date for filing proofs of claim was November 1, 1985. In November 1987, Johnson filed a motion to extend the time for filing complaints objecting to dischargeability and proofs of claim. The bankruptcy court denied the extension to file a dischargeability complaint on the ground that it lacked the discretion to do so. This order was not appealed. However, the court granted Johnson an extension of time in which to file a proof of claim on the grounds that Johnson was unaware of his claim against the Debtors until after the bar date had passed, and the Debtors would not be prejudiced by the filing of the claim. The Debtors timely appealed.
On appeal, the Debtors argue that the court erred in granting the extension of time because: 1) Johnson had actual notice of the bankruptcy; 2) Johnson's attorney had actual notice of the Dix bar date because he had petitioned the court to set the bar date and that this knowledge should be imputed to Johnson; 3) there is evidence in the record indicating that Johnson was aware of a claim against the Debtors prior to the bar date; 4) the Debtors would be prejudiced by such an extension; and 5) Johnson has failed to show excusable neglect.
Whether or not to extend a bar date is a matter within the sound discretion of the bankruptcy court and such a decision will not be set aside absent an abuse of discretion. Vancouver Women's Health Soc. v. A.H. Robins Co., 820 F.2d 1359, 1363 (4th Cir.1987); In re GAC Corp., 681 F.2d 1295, 1301 (11th Cir.1982).
Bankruptcy Rule 3003(c)(3) provides that in Chapter 11 cases, "the court shall fix and for cause shown may extend the time within which proofs of claim or interest may be filed." Bankruptcy Rule 9006(b)(1) provides:
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 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 enlarged if the request therefor is made before the expiration of the period originally prescribed or as extended by a previous order or (2) on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.
B.R. 9006(b)(1) (emphasis added).
Although Rule 3003(c)(3) states that a court may grant an extension "for cause shown", most courts have held that extensions requested after the bar date has passed may be granted only upon a showing of excusable neglect as required by Rule 9006(b). See, e.g., In re South Atlantic Financial Corp., 767 F.2d 814, 817 (11th Cir.1985); In re O.P.M. Leasing, 48 B.R. 824, 830 (S.D.N.Y.1985); In re Bajan Resorts, Inc., 71 B.R. 52, 54 (Bankr.D.Utah 1987); In re Century Brass Products, Inc., 15 C.B.C.2d 635, 638 (Bankr.D.Conn. 1986); In re Wm. B. Wilson Mfg. Co., 59 B.R. 535, 537 (Bankr.W.D.Tex.1986); In re Hardy, 33 B.R. 77, 79 (Bankr.D.Nev.1983) ().
Other courts have held that a creditor need only show "cause" for the court to permit the late filing of a proof of claim, regardless of when the extension is sought. For instance, in In re Terex Corp., 45 B.R. 290, 292 (Bankr.N.D.Ohio 1985) the court noted that Rule 3003(c)(3) specifically deals with proofs of claim while Rule 9006 deals with computation of time generally and, thus, the general rule must yield to the specific. See also In re Jartran, 76 B.R. 123, 126 (Bankr.N.D.Ill.1987); (adopting "for cause" standard without discussion); In re Lester Witte & Co., 52 B.R. 436, 437 (Bankr.N.D.Ill.1985) (). See also 8 L. King, Collier on Bankruptcy, § 3003.054 (15th Ed.1988) ().
We believe that the better view is the one adopted in the South Atlantic, Bajan and Wilson Mfg. cases, i.e., that an extension requested prior to the bar date may be granted upon a showing of cause, but an extension requested after the bar date may only be granted upon a showing of excusable neglect. This analysis accords with Rule 9006(b)(1)(2) which expressly applies to motions for extensions "made after the expiration of the specified period". Thus, contrary to the position of the Terex court, we believe that Rule 9006(b)(1) is the more "specific" rule to be applied.
The Ninth Circuit has noted that there are two standards of excusable neglect, one "strict" and one "liberal", and their application depends upon the procedural context in which the extension is sought. In re Magouirk, 693 F.2d 948, 950 (9th Cir.1982)2 In Magouirk the court noted that excusable neglect is generally liberally construed "in those instances where the order or judgment forecloses trial on the merits of a claim," such as a motion to set aside a default judgment under Fed.R. Civ.P. 60(b). Id. at 951. Where, however, the purpose of the extension sought is to review the propriety of a decision on the merits, such as in the context of a late filed notice of appeal, the term excusable neglect must be strictly interpreted. Id. at 950-951. The strict interpretation of excusable neglect requires "(1) a finding that the party failed to learn of the entry of judgment, or (2) a finding of extraordinary circumstances where excusing the delay is necessary to avoid an injustice." Id. at 950.
In contrast, under the liberal definition of excusable neglect, consideration of a broad range of factors is appropriate:
Because the disallowance of a late filed proof of claim forecloses trial on the merits of a claim, under the standard announced in Magouirk we conclude that the liberal construction of excusable neglect should be applied in this context. Accord Hardy, 33 B.R. at 80. Accordingly, we turn to the question of whether Johnson has established excusable neglect.
With regard to the issue of prejudice, the Debtors argue that they would be prejudiced by the late allowance of Johnson's claim because a plan has now been confirmed. This argument is not persuasive. The bankruptcy court confirmed the plan after it granted Johnson the extension. Although the plan is not part of the record on...
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