In re Figueroa

• Decision Date: 20 September 1983
• Docket Number: Bankruptcy No. 83 B 10154.
• Citation: 33 BR 298
• Parties: In re Miguelina FIGUEROA, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

33 B.R. 298 (1983)

In re Miguelina FIGUEROA, Debtor.

Bankruptcy No. 83 B 10154.

United States Bankruptcy Court, S.D. New York.

September 20, 1983.

Sennet & Krumholz, New York City, for plaintiff Citibank by Charles Sabel, New York City, of counsel.

Horwitz & Associates, New York City, for debtor by Glenn E. Siegel, New York City, of counsel.

HOWARD C. BUSCHMAN III, Bankruptcy Judge.

Citibank, N.A. ("Citibank"), a creditor in the above-captioned action, moves for an order pursuant to Bankruptcy Rule of Procedure 409(a)(2) granting it an extension of time within which to file a complaint to determine the dischargeability of its unsecured claim against Miguelina Figueroa ("debtor"), pursuant to § 523(c) of the Bankruptcy Code ("Code").

I

Citibank's claim against the debtor arose from purchases totalling $4,481.16 that she charged to her Citibank Visa account. Debtor opened her Visa account with Citibank in September of 1982, with an assigned credit limit of $1,100 for purchases, and $300 for cash advances, for a total of $1,400. Testimony adduced at trial revealed that during the 90 days preceding debtor's Chapter 7 filing, debtor executed 141 charges to her Citibank Visa Card. In January of 1983, approximately 99 purchases, in the amount of $50 or less were charged to debtor's account.¹ Citibank's credit check procedures are such that if a purchase is made for $50 or less, no credit check is made on the cardholder's account. Citibank contends that it was debtor's knowledge and use of this procedure that enabled the debtor to go on "a classic `credit card spending spree' on the eve of bankruptcy." Thus, if its request for an extension pursuant to Rules 409(a)(2) and 906(b) is not granted, Citibank argues that the debtor will have succeeded in defrauding Citibank and will reap an unjust windfall.

On February 1, 1983, debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. Citibank received notice of the debtor's bankruptcy by a copy of this Court's order, setting March 7, 1983 as the date for the § 341(a) meeting of creditors, and June 7, 1983 as the last day to file objections to the discharge of a particular debt. By letter dated April 6, 1983, Robert Cox, counsel to Citicorp Credit Services, Inc., informed debtor's attorneys, Horwitz & Associates, P.C., that Citibank had a possible complaint against the debtor. Furthermore, debtor's attorneys were informed that if they did not respond to Cox's letter within thirty days, that the matter would then be turned over to Citibank's outside counsel for litigation. The letter affirmed that Citibank was aware that June 7, 1983, was the last day for the filing of complaints to determine dischargeability of a debt.

Having received no response from debtor's counsel, on May 5, 1983, Susan J. Gorelick, of Citibank, who acts as a liaison between Citicorp Credit Services, Inc., and Citibank's outside counsel, mailed the documents pertaining to this matter to Mr. Marvin Krumholz, of Sennet & Krumholz, one of several firms employed by Citibank as outside counsel. Her letter summarized the facts relating to Citibank's claim and requested that Mr. Krumholz file a complaint objecting to the dischargeability of the debt prior to June 7, 1983.

The debtor received her discharge on June 15, 1983. Thirteen days after, and for the first time since May 5, 1983, Ms. Gorelick contacted Sennet & Krumholz to ascertain the status of Citibank's complaint. Sennet & Krumholz informed her at that time that they never received her letter of May 5, 1983. Consequently, on July 15, 1983, Sennet & Krumholz, on behalf of their client, moved for an extension of time pursuant to Bankruptcy Rule 409(a)(2) to file a complaint to determine the dischargeability of the debt. They allege that Ms. Gorelick's letter was either lost, misplaced or misdirected by the United States Postal Service.

At the hearing on this proceeding, Ms. Gorelick testified that the procedures employed for the May 5th mailing were the same as those used for all of the other mailings to outside counsel that she had supervised in the past. She explained that the notice of the filing of a bankruptcy petition usually is received by her about one month after its receipt at Citibank's offices in Sioux Falls, South Dakota. Ms. Gorelick also testified that when she received the notice on this particular case, sometime before April 6, 1983, she reviewed debtor's file and found that Citibank had grounds to object to the discharge of this debt. She so informed Mr. Cox, who then wrote the April 6th demand letter, which Ms. Gorelick followed up by her May 5th letter to Sennet & Krumholz.

Ms. Gorelick stated that as she had never had any problem of this nature before, she presumed that Mr. Krumholz had received her May 5th package. On cross-examination, Ms. Gorelick further testified that Citibank did not employ a "tickler" system to flag important dates.

Debtor's attorney contends that it is the absence of such a system, especially in an operation as large and sophisticated as Citibank, that most strongly demonstrates Citibank's lack of excusable neglect and also is the reason why this motion should be denied.

II

Under former Bankruptcy Rules 409(a)(2)² and 906(b)(2)³, this Court clearly could grant Citibank's motion as long as it proved that its failure to file before June 7, 1983 was due to "excusable neglect". The new Bankruptcy Rules 4007(c)⁴ and 9006(b)(3)⁵, however, no longer permit the courts to extend the time to file a § 523(c) complaint after the expiration date. It is clear that by prohibiting that which it formerly permitted, Congress intended to no longer subject the preeminent fresh start policy to the uncertainties of excusable neglect in failing to timely object to discharge of a claim.

The application of this Congressional intent to the case at bar, however, is not so clear. When the Supreme Court ordered on April 25, 1983 that the new Bankruptcy Rules would take effect on August 1, 1983 absent contrary Congressional action, it also said that the rules "shall be applicable to proceedings then pending, except to the extent that in the opinion of the court their application in a pending proceeding . . . would work an injustice, in which event the former procedure applies."

The issue which thus emerges is whether application of new Bankruptcy Rules 4007(c) and 9006(b)(3) to Citibank's motion to extend time would work an injustice to Citibank. We hold that no such injustice has been shown here. Under the broader, more liberal, old Bankruptcy Rule standards, Citibank's motion would be denied. Since Citibank has not shown that there was excusable neglect for its failure to file its complaint by June 7, 1983, a fortiori, it has also failed to prove that denial of its Rule 906(b) motion would result in an injustice to it, one of the components of the excusable neglect standard. Consequently, we must deny Citibank's motion.

III

The phrase "excusable neglect" is not defined anywhere in the Rules or the Code. In re Digby, 29 B.R. 658, 663 (Bkrtcy.N.D.Ohio W.D.1983); In re Horvath, 20 B.R. 962, 966 (Bkrtcy.S.D.N.Y. 1982). In re Heyward, 15 B.R. 629, 635 (Bkrtcy.E.D.N.Y.1981). Rather, it is a flexible concept and has become a term of art, subject to interpretation by the trier of facts, and has been defined as:

. . . the failure to timely perform a duty due to circumstances which were beyond the reasonable control of the person whose duty it was to perform.

In re Manning, 4 B.C.D. 304, 305 (Bkrtcy.D. Conn.1978). Although this definition is widely cited, e.g., In re Horvath, 20 B.R. 962, 966 (Bkrtcy.S.D.N.Y.1982); In re Heyward, 15 B.R. 629, 635 (Bkrtcy.E.D.N.Y. 1981); In re Webb, 8 B.R. 535, 537 (Bkrtcy. S.D.Tex.1981); In re Biddy, 7 B.R. 50, 52 (Bkrtcy.N.D.Ga.1980); In re Rogers, 2 B.R. 485, 487 (Bkrtcy.W.D.Va.1979), and the issue of the existence of excusable neglect is a recurrent one in the bankruptcy courts, the principles to be applied are far from settled. In re Heyward, 15 B.R. 629, 635 (Bkrtcy.E.D.N.Y.1981), citing In re Rapino, 11 B.R. 651, 654 (Bkrtcy.E.D.N.Y.1981).

While the divergence in opinion as to the applicable principles is such that it leads one court to state that the excusable neglect standard is a "confused and difficult area", In re Digby, 29 B.R. 658, 661 (Bkrtcy. N.D.Ohio, W.D.1983), there is a general consensus among the courts as to several basic concepts. Permeating each court's finding as to whether the creditor's late filing was due to excusable neglect is the need to strike a balance between the two parties' competing interests: (1) the debtor's entitlement to the full benefits of his discharge and (2) the creditor's interest in avoiding the same where possible fraud exists. In re Digby, 29 B.R. 658, 662 (Bkrtcy. N.D.Ohio W.D.1983); In re Elliano, 9 B.R. 287, 289 (Bkrtcy.E.D.N.Y.1981); In re Murphy, 1 B.R. 736, 739 (Bkrtcy.S.D.Cal.1979); In re Koritz, 2 B.R. 408, 413 (Bkrtcy.D. Mass.1979); In re Young, 1 B.R. 387, 390 (Bkrtcy.M.D.Tenn.1979).

In striking that balance, the courts look for one essential element: whether the party requesting the extension has demonstrated that there is a reasonable basis for its alleged "excusable neglect". In re Digby, 29 B.R. 658, 663 (Bkrtcy.N.D.Ohio W.D. 1983); In re Horvath, 20 B.R. 962, 966 (Bkrtcy.S.D.N.Y.1982); In re Heyward, 15 B.R. 629, 635 (Bkrtcy.E.D.N.Y.1981); In re Webb, 8 B.R. 535, 537 (Bkrtcy.S.D.Tex. 1981); In re Anderson, 5 B.R. 51, 52 (Bkrtcy.N.D.Ohio 1980). The courts have delineated a panopoly of factors to be considered in making that determination: (1) whether the creditor received adequate notice, (2) whether granting the delay will prejudice the debtor, (3) the source and length of the delay, as well as its impact on efficient court administration, (4) whether the delay was beyond the reasonable control of the person whose duty it was to perform, (5) whether the creditor is a sophisticated creditor, (6)...