In re Leroux, Bankruptcy No. 92-20403-WCH.

• Decision Date: 18 December 1997
• Docket Number: Bankruptcy No. 92-20403-WCH.
• Citation: 216 BR 459
• Parties: In re Edward G. LEROUX, Jr., Debtor.
• Court: U.S. Bankruptcy Court — District of Massachusetts

216 B.R. 459 (1997)

In re Edward G. LEROUX, Jr., Debtor.

Bankruptcy No. 92-20403-WCH.

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

December 18, 1997.

Andrew L. Cohen, Timothy R. Epp, Douglas R. Gooding, Paul D. Moore, Choate, Hall & Stewart, Boston, MA, for debtor.

Patrick G. Waters, Gargill, Sassoon & Rudolf, Boston, MA, for Creditor Committee.

Gary W. Cruikshank, Boston, MA, for Movants.

DECISION REGARDING MOTIONS FOR RECONSIDERATION OF ORDER WITH RESPECT TO DEBTOR'S FIRST AMENDED OMNIBUS OBJECTION TO CLAIMS

WILLIAM C. HILLMAN, Bankruptcy Judge.

I. Introduction

I consolidated for consideration three motions for reconsideration of the Order With Respect to Debtor's First Amended Omnibus Objection to Claims Pursuant to 11 U.S.C. § 502 and Fed.R.Bankr.P. 3007 (the "Order"). In essence, three creditors ask that I reconsider the Order on the grounds that the claims objection procedure in this case was confusing. The Official Committee of Unsecured Creditors (the "Committee") supports reconsideration. The Debtor objects to the motions asserting that the procedure was clear and that, in any event, the underlying claims cannot be allowed because they are void as against the public policy of Massachusetts.

II. Background

On October 8, 1996, I entered an order confirming the Debtor's Amended Plan of Reorganization (the "Confirmation Order"). Pursuant to the terms of the Confirmation Order, the Debtor was to file any objections to proofs of claims on or before 90 days after the Effective Date of the Amended Plan.

On January 14, 1997, the Debtor filed a "Motion to Extend Time Within Which to Object to Claims" in which he sought an extension until February 28, 1997 to file any objections to claims (the "Extension Motion"). I granted that motion on January 22, 1997.

Also on January 14, 1997, Judge Woodlock of the United States District Court for the District of Massachusetts entered an order vacating the Confirmation Order and remanding confirmation proceedings to this Court.

On January 17, 1997, the Debtor filed "Debtor's Omnibus Objection to Claims Pursuant to 11 U.S.C. § 502 and Fed.R.Bankr.P. 3007" (the "Omnibus Objection"). Also on that date, the Debtor filed "Debtor's Motion for Order Suspending Further Proceedings with Respect to Debtor's Objections to Claims Pending Resolution of Confirmation" (the "Suspension Motion"). In the Suspension Motion, the Debtor sought ". . . an order suspending further proceedings on the Debtor's omnibus objection to claims which has been filed simultaneously herewith . . . pending this Court's resolution of litigation concerning the . . . Confirmation Order entered by this Court on October 8, 1996, but subsequently vacated . . ." Suspension Motion at p. 1.¹

In the "WHEREFORE" clause of the Suspension Motion the Debtor requested that the Court enter an order as follows:

1. Suspending further proceedings with respect to the Objection pending further order of this Court;

2. Providing the Debtor need not serve the Objection on affected claimants until after litigation concerning the Confirmation Order is resolved by this Court;

3. Providing that claimants are not required to respond to the Objection and no hearing will be scheduled on the Objection until further order of the Court; and

4. Granting the Debtor such other and further relief as this Court deems just and proper.

On January 22, 1997, I granted the Extension and Suspension Motions. On January 29, 1997, counsel to the Debtor wrote a letter to counsel for the Committee to inform him of the orders granting those motions. He also informed counsel that he would be filing an amended objection to claims by February 28, 1997.

On February 28, 1997, the Debtor filed "Debtor's First Amended Omnibus Objection to Claims Pursuant to 11 U.S.C. § 502 and Fed.R.Bankr.P. 3007" (the "Amended Objection") in which he represented that the Objection "shall amend and supersede the Omnibus Objection. On page 2, the Debtor referenced the Suspension Order without explanation. The Court scheduled the Objection for hearing on April 21, 1997 with an objection deadline of April 14, 1997. On March 3, 1997, the Debtor filed a Certificate of Service which indicated that on that date the Debtor served the Objection on parties entitled to notice. On March 6, 1997, the Debtor filed a Certificate of Service which indicated that on that date the Debtor served the Court-generated Notice of Hearing on parties entitled to notice.

Before the hearing, counsel to the Committee contacted counsel to the Debtor to explain that some confusion existed as to the effect of the Suspension Order on the Objection.

At the hearing on April 21, 1997, the Debtor reminded the Court that it had entered the Suspension Order. Debtor's counsel stated that "there may be some confusion in the sense that there is this order granting the stay and there was a notice and response deadline and hearing set for the objection." I replied that I would enter an order that "the stay previously granted does not apply to these claims objections." I also entered the Order which sustained the Debtors objection as to the claims of Adamar of New Jersey, Inc. ("Adamar"), GNOC Corp. ("GNOC"), and Bally's Park Place, Inc. ("Bally's")(collectively the "Creditors"). Oddly, counsel to the Committee did not attend the hearing.

Both before the hearing and after, counsel to the Committee and counsel to the Debtor exchanged conversations and correspondence regarding the Creditors' confusion with respect to whether the Suspension Order remained in place.

On June 18 and August 6, 1997, the Creditors filed motions to reconsider the Orders. Essentially, the Creditors state that although they were served with the Amended Objection and the Notice of Hearing, they failed to respond based upon their belief that the Suspension Order remained in effect.

In his objection to the motions to reconsider, the Debtor disputes that the Creditors were confused by the Suspension Order because they were not served with the Suspension Order or the underlying motion. Further, he argues that there could not have been any confusion because the Amended Objection "referred to the Court's prior orders on the Motion to Extend and on the Extension Motion and, thus, should have made it clear to the Creditors that the Amended Objection was not subject to the earlier Suspension Motion or the related order of this Court." The Debtor also points to my findings at the hearing that the Suspension Order was not applicable. Moreover, the Debtor argues that even if there were confusion, that in and of itself is insufficient cause to warrant reconsideration.

The Committee has filed pleadings supporting the reconsideration motions and to apprize the Court of its role in the above-described proceedings. The Committee contends that the events described above created sufficient confusion to warrant reconsideration of the Order. The Committee points out that the Suspension Order requested that the claims objection process be suspended until a further order of the Court. The Notice of Hearing was prohibited by the Suspension order and prior to the hearing in April, no order issued indicating that the Suspension order was vacated. As to the Debtor's argument that the Suspension Order applied to the Omnibus Objection and not the Amended Objection, the Committee states that the Suspension Order suspended all claim proceedings.

I held a hearing on the reconsideration motions at which time counsel reiterated their positions. Thereafter, I gave the parties the opportunity to file memoranda on the matter.

III. Position of the Parties

In his memorandum, the Debtor asks the Court to consider applying one of two standards when considering whether to grant reconsideration. The first requires one of the following findings:

1. the Court has patently misunderstood a party;

2. the court has made a decision outside the adversarial issues presented by the parties;

3. the court has made an error not of reasoning but of apprehension; or

4. there is a controlling or significant change in the law or facts since the submission of the issue to the Court.

Above The Belt, Inc. v. Mel Bohannan Roofing, Inc., 99 F.R.D. 99, 101 (E.D.Va.1983).

The second standard would involve an application of Rule 60(b) which would allow for relief only upon a showing of the following:

(1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b), (3) fraud, misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have any prospective application; or (6) any other reason justifying relief from the operation of the judgment.

Fed.R.Civ.P. 60(b) (applied to bankruptcy proceedings through Fed.R.Bankr.P. 7024(b)).

The Debtor argues that under either standard, "confusion" on the part of the creditors does not warrant reconsideration. Further, the Debtor contends that even if the Court were to grant reconsideration, the Court should deny the claims as they are void as against the public policy of Massachusetts.

In their memoranda, the Creditors argue that the unique procedural posture of the claims procedure and the ensuing confusion warrant reconsideration. Further, they argue that the underlying debts should not be disallowed as against public policy.

IV. Analysis

Based upon the forgoing, I am asked to first decide whether reconsideration of the Order is warranted. If the answer is yes, I must then consider whether the underlying claims are allowable.

A. Whether Reconsideration is Appropriate

11 U.S.C. § 502(j) states, in part, that a "claim that has been allowed or disallowed may be reconsidered for...