In re Lambeth Corp.
| Decision Date | 17 November 1998 |
| Docket Number | BAP No. MB 97-108. |
| Citation | 227 BR 1 |
| Parties | In re LAMBETH CORPORATION, Debtor. NEAL MITCHELL ASSOCIATES, Appellant, v. Joseph BRAUNSTEIN, Trustee, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, First Circuit |
Edward J. Collins, Law Offices, Cambridge, MA, on brief, for Appellant.
William M. Straus, Lang, Xifaras & Bullard PA, New Bedford, MA, on brief, Joseph Braunstein, Reimer and Braunstein, Boston, MA, for Appellee.
Before DE JESÚS, HAINES and CARLO, Bankruptcy Judges.
Neal Mitchell Associates ("NMA") appeals the bankruptcy court's order disallowing its claim. Because we conclude that the court abused its discretion when it sustained the trustee's objection to NMA's claim without a hearing, we vacate the order and remand for further proceedings.
NMA worked for the debtor, The Lambeth Corporation ("Lambeth") as a consultant during the second half of 1990 and early 1991. In February of 1991 NMA commenced a state court action to recover $86,500 allegedly due it for services rendered. A writ of attachment issued and was recorded as a lien on Lambeth's real estate.
Lambeth filed for Chapter 11 protection in late winter of 1992. Its Chapter 11 schedules listed NMA as holder of a disputed $350,000 claim ($115,000 disclosed as secured). About a year later it converted to Chapter 7. NMA filed a proof of claim for $126,248.69, asserting that the claim was secured to the extent of $86,500.1
The Chapter 7 trustee objected to NMA's claim in March of 1997.2 The bankruptcy court convened a status conference on April 16, 1997, and issued an order setting a hearing on the objection to claim for September 11, 1997. The order required the trustee to amend his objection to NMA's claim on or before August 15. NMA was given until August 27 to respond. The parties complied.3
On September 11, 1997, the court commenced an evidentiary hearing on the objection. Following brief testimony by a single witness, counsel and the court discussed the nature of the claim dispute at length. Although the trustee sought disallowance or reduction of a substantial portion of the claim, he expressly recommended that NMA's secured claim be allowed in the amount of $32,225, (Tr. at 28, 32), and conceded that it might not be worth his while to challenge $29,000.00 of NMA's unsecured claim. (Tr. at 34.)
The judge described the trustee's objection as "very difficult to understand," even "incomprehensible," (Tr. at 36, 53, 56), and expressed "frustration at an inability to quite understand" the calculations underlying the dispute. (Tr. at 39.) She opined that the trustee's initial objection to NMA's claim "didn't pass statutory muster," (Tr. at 45), and questioned whether the amended objection accomplished anything more. (Tr. at 36.) The judge concluded that the objection was not sufficient to shift the burden of proof to NMA, but also expressed some concern over the sufficiency of NMA's proof of claim. (Tr. at 46, 53, 55.)4 Finally, the colloquy ended with the judge remarking:
(Tr. at 57-63.)
Again, both parties filed the required documents within the dictated time.5 NMA filed a fifty-two page amended proof of claim, appending affidavits, the contract, its original proof of claim, the state court complaint and motion for attachment, six invoices from July through December 1991 billed at per-day rates, receipts for expenses, correspondence requesting payment, correspondence and a memorandum regarding a potential buy-out of the Debtor, and a summary (with graphs) of its pre-bankruptcy billings. Although extensive, the amended proof of claim did not include every item detailed in the court's September 8 instructions.
The trustee's response raised three issues: (1) services were billed on a daily rate as opposed to the hourly rates provided for by contract; (2) NMA billed $10,500 for a subcontractor retained without the debtor's consent and from whom the debtor received no work product; and (3) a substantial portion of the unsecured claim was for work performed after NMA had acknowledged it was no longer working for Lambeth. The trustee sought disallowance of the portion of NMA's secured claim attributed to the subcontractor's work and disallowance of its unsecured claim for post-contractual work, but stated that he did "not recommend the denial of the remaining claim in full as there is clear evidence of the work performed by the claimant." However, he urged that his objection successfully shifted the burden back to NMA to "establish the specific time incurred sic providing services which will justify some payment to him."
As promised, the court calendared a hearing for December 4, 1997, and noticed it through the clerk's office in a pro-forma "Notice of Nonevidentiary Hearing and Response Deadline" on "Chapter 7 Trustee's Objection to Amended Proof of Claim." The notice, issued by a deputy clerk, set an objection/response deadline of November 24, 1997. It included the following, standard proviso:
NMA's counsel arrived at the courthouse on the morning of December 4, 1994, ready to put on evidence. He was, however, unaware that on December 2, 1997, the judge had endorsed a margin order on the trustee's objection to NMA's amended proof of claim:
NMA asserts that the bankruptcy court abused its discretion by summarily sustaining the trustee's objection to its amended claim. Consistent with the court's direction at the September hearing, NMA understood that a continued hearing would be scheduled if, after it filed its amended claim, the trustee filed a timely objection. In NMA's view, after filing its amended claim, no further written submission on its part would be necessary.
Although the clerk's notice for the December hearing did not align with the court's instructions, NMA assumed that the notice issued for the purpose of setting a hearing date. It disregarded the notice's form requirement that it should file yet another pleading or risk disallowance of its claim because, simply put, those requirements were at odds with the court's express instructions.
NMA further contends that, in light of its consistent, timely efforts to press its claim during the entire course of Lambeth's bankruptcy, the court's ruling affronts equity. Moreover, it stresses that the trustee was not even asking that NMA's claim be disallowed in toto. Thus, in NMA's view, the inequity is compound: the court's order granted relief beyond that requested by the trustee.7
In response, the trustee relies on the hearing notice's explicit terms. He asserts that if counsel for NMA found the notice ambiguous, he should have complied with it or sought clarification from the court. After all, he argues, the court had instructed NMA to start "from scratch" in revising its proof of claim. Further, intimating that NMA's failure to seek reconsideration in the bankruptcy court somehow impairs its rights on appeal, ...
To continue reading
Request your trial