In re Kmart Corp.

• Citation: 381 F.3d 709
• Decision Date: 27 August 2004
• Docket Number: No. 03-4084.,03-4084.
• Parties: In the matter of: KMART CORPORATION, et al., Debtors-Appellees, Appeal of: Wilhemina SIMMONS, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

381 F.3d 709

In the matter of: KMART CORPORATION, et al., Debtors-Appellees,

Appeal of: Wilhemina SIMMONS, Appellant.

No. 03-4084.

United States Court of Appeals, Seventh Circuit.

Argued April 9, 2004.

Decided August 27, 2004.

Appeal from the United States Bankruptcy Court for the Northern District of Illinois.

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Robert E. Shapiro (argued), Barack, Ferrazzano, Kirschbaum, Perlman & Nagelberg, Chicago, IL, Andrew N. Goldman, Wilmer, Cutler & Pickering, New York, NY, for Debtor-Appellee.

Barbara L. Yong, Karen G. Kranbuehl (argued), Field & Golan, Chicago, IL, for Appellant.

Before BAUER, EASTERBROOK, and KANNE, Circuit Judges.

KANNE, Circuit Judge.

I. Background

Kmart, Corp. filed a petition for relief under Chapter 11 of the Bankruptcy Code on January 22, 2002 ("Petition Date"). On March 26, 2002, the bankruptcy court entered an order establishing July 31, 2002 as the deadline for filing proofs of claim ("Original Bar Date" or "Bar Date"). See Fed. R. Bankr.P. 3003(c)(3) (The "court shall fix and for cause shown may extend the time within which proofs of claim or interest may be filed."). Later, upon Kmart's motion, the bankruptcy court established a supplemental bar date of January 22, 2003 ("Supplemental Bar Date") for a limited set of pre-Petition Date creditors who had not previously been sent notice of the Original Bar Date. See id.

Appellant Simmons suffered a fall in a Kmart store in St. Croix, U.S. Virgin Islands, on December 13, 2001. She sought to pursue a $750,000 pre-Petition Date personal-injury claim against Kmart based upon her accident, which she asserts was caused by a malfunctioning store door. Notice of the Bar Date was sent to Simmons at her address as listed in the files of Kmart's third-party claims administrator, Trumbull Services. The mailing was never returned to Kmart as "undeliverable." However, Simmons asserts that she never personally received the notice because the address used by Trumbull was not her actual mailing address. Nonetheless, it is undisputed that Simmons's attorney had actual knowledge of the Original Bar Date, as her counsel had filed timely proofs of claims for over two dozen other Kmart creditors.

Despite counsel's awareness of the Original Bar Date, Simmons's proof of claim was untimely, delivered to Kmart one day after the Bar Date on August 1, 2002. Apparently, on July 30, the day before the Bar Date, Simmons's attorney delegated to an office clerk the task of mailing Simmons's proof of claim. Unfortunately for Simmons, the clerk waited until around two o'clock in the afternoon before attending to the assignment. Either because of an oversight by the clerk or because the post office refused to guarantee a next-day delivery given the late hour, the clerk checked the box for "Second Day Delivery" on the mail delivery instructions and the package arrived one day later than Simmons and her attorney intended.

Moreover, although the claim form recommended that claimants include a self-addressed stamped envelope so that Trumbull could mail verification of its receipt of the form to the claimant, Simmons's attorney did not do so. Nor did counsel make any follow-up phone calls to ensure that the proof of claim was timely received. As a result, Simmons (through counsel) did not realize that her filing was late until September 23, 2002, when a notice from Kmart was received, informing Simmons that her claim was now barred. For unknown reasons, Simmons's attorney then waited until October 21, 2002 to move under Rule 9006(b)(1) of the Federal Rules of Bankruptcy Procedure for Simmons's proof of claim to be deemed timely filed.¹

Evaluating whether Simmons's late filing was the result of "excusable neglect" as required under Rule 9006(b)(1), the bankruptcy court considered the four factors established in Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 395, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). On November 19, 2002, the court denied Simmons's motion to deem her claim timely filed.

Simmons again tried to avoid the effect of her late filing by moving to have her claim covered by the Supplemental Bar Date. On February 5, 2003, the court reasoned that because her attorney had actual notice of the Bar Date, Simmons could not properly be considered one of the limited set of creditors to whom the Supplemental Bar Date applied. The court denied Simmons this "second bite of the apple."

The district court consolidated her subsequent appeals and ultimately upheld both of the bankruptcy court's rulings. For the following reasons, we affirm.

II. Analysis

Our de novo review of the district court's decision to affirm the bankruptcy court allows us to assess the bankruptcy court's judgment anew, employing the same standard of review the district court itself used. Corporate Assets, Inc. v. Paloian, 368 F.3d 761, 767 (7th Cir.2004) (citing Frierdich v. Mottaz, 294 F.3d 864, 867 (7th Cir.2002)). The bankruptcy court's refusal to deem Simmons's claim timely filed will be overturned only in extreme cases, when the bankruptcy court has abused its discretion. See In re Singson, 41 F.3d 316, 320 (7th Cir.1994). Likewise we review the bankruptcy court's refusal to apply the Supplemental Bar Date to Simmons's proof of claims—a ruling essentially construing the import of the court's prior order establishing the Supplemental Bar Date—for an abuse of discretion. See In re Weber, 25 F.3d 413, 416 (7th Cir.1994). In general terms, a court abuses its discretion when its decision is premised on an incorrect legal principle or a clearly erroneous factual finding, or when the record contains no evidence on which the court rationally could have relied. Corporate Assets, 368 F.3d at 767 (citing United States v. Jain, 174 F.3d 892, 899 (7th Cir.1999); Salgado by Salgado v. General Motors Corp., 150 F.3d 735, 739 & n. 4 (7th Cir.1998)).

A. Motion to Deem Simmons's Claim Timely Filed

As we noted above, because Simmons's proof of claim was filed one day after the Original Bar Date, she moved to have her claim deemed timely filed under Rule 9006(b). Under Rule 9006(b), a bankruptcy court may, in its discretion, grant such relief if the late filing was the result of "excusable neglect." In its 1993 Pioneer decision, supra, the Supreme Court established four factors to guide courts' excusable neglect analyses. Specifically, a court assessing whether to grant a motion under Rule 9006(b) to have a late-filed proof of claim deemed timely must evaluate "[1] the danger of prejudice to the debtor, [2] the length of the delay and its potential impact on judicial proceedings, [3] the reason for the delay, including whether it was in the reasonable control of the movant, and [4] whether the movant acted in good faith." 507 U.S. at 395, 113 S.Ct. 1489. Simmons does not dispute that the bankruptcy court correctly considered the four factors outlined by Pioneer. Instead, Simmons posits that the court's factual determinations with respect to each of the factors were clear error and that its ultimate decision to deny her Rule 9006(b) motion was therefore an abuse of discretion. We disagree.

1. Danger of prejudice to Kmart

The bankruptcy court determined that allowing Simmons's claim would cause prejudice to Kmart. Simmons aptly points out that Kmart's first amended plan of reorganization was filed on February 25, 2003 and confirmed on April 23, 2003, nearly eight months after the Original Bar Date. Therefore, the debtor Kmart, who had received Simmons's proof of claim on August 1, 2002, was on full notice of her claim and could have easily taken it into account when it drafted its reorganization plan (and in structuring any economic models used to create the plan). Cf. O'Brien Envtl. Energy, Inc. v. NRG Energy, Inc. (In re O'Brien Envtl. Energy, Inc.), 188 F.3d 116, 126 (3d Cir.1999) (laying out factors for assessing prejudice under Pioneer, including whether the debtor had knowledge of the claim at the time the reorganization plan was filed or confirmed, and whether the late filing would disrupt the plan or economic models used in the plan's development). Likewise, because the Supplemental Bar Date was in the offing at the time of Simmons's Rule 9006(b) motion, Kmart was indisputably still in the process of identifying other claimants. Hence, Simmons posits, there was no prejudice to Kmart as a result of Simmons's tardy filing.

The bankruptcy court did not address these particular facts in its Pioneer analysis, but instead emphasized Simmons's delay in bringing the Rule 9006(b) motion, which we address in detail below, and the size of her claim, $750,000, characterizing it as "no small amount." Allowing Simmons's late-filed claim could induce other similarly sized late-claimants to so petition the bankruptcy court. See In re Specialty Equip. Cos. Inc., 159 B.R. 236, 239 (Bankr. N.D.Ill.1993). And while it is true that Simmons's claim represents only a small fraction of the approximately $6 billion total of unsecured claims against Kmart, if the bankruptcy court allowed all late-filed claims of nearly a million dollars where a simple "innocent mistake" (see our detailed discussion of Simmons's "reason" for the delay below) was to blame for the tardiness of the proof of claim, we think Kmart could easily find itself faced with a mountain of such claims, with a corresponding price tag in the millions of dollars. Perhaps this would be a different case had Simmons's claim only asserted, say, $75,000 or $80,000 in damages. In any event, the bankruptcy court knew the total number of claims against Kmart, and still found that Simmons's claim was "no small amount." It was in the best position to assess the relative size of Simmons's claim, and she has presented us with no reason here to disturb that judgment.

To conclude, although we do not find the bankruptcy court's reasoning overwhelmingly persuasive, because, at a minimum, reasonable minds could...