In re MPAC Home Improvement & Const., LLC

• Decision Date: 03 May 2021
• Docket Number: Case No. 19-41940-CJP
• Parties: In re: MPAC HOME IMPROVEMENT AND CONSTRUCTION, LLC Debtor
• Court: U.S. Bankruptcy Court — District of Massachusetts

In re: MPAC HOME IMPROVEMENT AND CONSTRUCTION, LLC Debtor

Case No. 19-41940-CJP

UNITED STATES BANKRUPTCY COURT DISTRICT OF MASSACHUSETTS

May 3, 2021

Chapter 7

ORDER ON MOTION TO FILE A LATE PROOF OF CLAIM PURSUANT TO FED. R. BANKR. P. 3002(C)(6)

Upon consideration of the Motion to File a Late Proof of Claim Pursuant to Fed. R. Bankr. P. 3002(c)(6) (Dkt. No. 91) (the "Motion") filed by Malcolm Sim, Mandy Sim, Jacqueline Sekelsky, and Danny Sekelsky (collectively, the "Sim/Sekelsky Creditors"), the Opposition filed by Manpreet Nehra and Sanjiv Nehra (together, the "Nehra Creditors") (Dkt. No. 96) (the "Nehra Opposition"), the Objection filed by James LaPlante and Deborah Race (the "LaPlante/Race Creditors") (Dkt. No. 97) (the "LaPlante/Race Objection"), the Supplemental Opposition filed by the Nehra Creditors (Dkt. No. 103), the Supplemental Objection of the LaPlante/Race Creditors (Dkt. No. 104) accompanied by a Supplemental Memorandum and supporting documents (Dkt. No. 105), the affidavits and other exhibits filed therewith, and the arguments of counsel at a hearing held on the Motion, and no party having requested an evidentiary hearing after having been provided an opportunity to do so, the Court grants the Motion, as construed,¹ in part for the following reasons.

Background

MPAC Home Improvement & Construction LLC d/b/a Sudbury Home Improvement (the "Debtor") filed its Chapter 7 petition on December 14, 2019, and the deadline for non-governmental creditors to file proofs of claim was February 24, 2020. On September 29, 2018, well prior to the petition date, the Sim/Sekelsky Creditors had served a demand letter on the Debtor pursuant to M.G.L. ch. 93A, and the parties engaged in settlement discussions. See Aff. of Peter G. Calabrese, Esq. ("1st Calabrese Aff.") ¶¶ 2, Dkt. No. 91. On March 18, 2020, purportedly because the settlement discussions failed, the Sim/Sekelsky Creditors filed a Construction Arbitration with the American Arbitration Association. See id. at ¶¶ 2, 3. The Sim/Sekelsky Creditors did not receive notice of the bankruptcy case until March 24, 2020 in connection with the arbitration proceeding. See Aff. of Peter G. Calabrese, Esq. ("2nd Calabrese Aff.") ¶¶ 11, 13, Dkt. No. 105; Aff. of Danny Sekelsky ¶ 12, Dkt. No. 105; Aff. of Jacqueline Sekelsky ¶ 12, Dkt. No. 105; Aff. of Mandy Sim ¶ 12, Dkt. No. 105; Aff. of Malcolm Sim ¶ 12, Dkt. No. 105. On July 10, 2020, the Sim/Sekelsky Creditors filed the Motion with their proposed proof of claim (the "Proposed Claim") attached as an exhibit, asserting a $317,685 general unsecured claim arising from acts and omissions relating to a construction contract on 11 Mossman Road, Sudbury, Massachusetts. See Mot. 2, Attach. 1; Aff. of Danny Sekelsky ¶ 2, Dkt. No. 105. The Sim/Sekelsky Creditors request that this Court extend the time to file theirProposed Claim under Rule 3002(c) of the Federal Rule of Bankruptcy Procedure (the "Rules") so that their claim will not be a late claim. See Supp. Mem. and supporting documents 1, Dkt. No. 105.

The Nehra Creditors, who timely filed a $643,955.15 secured claim based on an arbitration award and attachment, filed an opposition to the Motion. The Nehra Creditors argue that they will be prejudiced if the Sim/Sekelsky Claim is filed and allowed because they will receive a substantially lower dividend despite having already invested significant attorney's fees to preserve their rights and enhance the value of the estate. See Aff. of Sanjiv Nehra ¶ 4, Dkt. No. 96; Nehra Opp'n ¶¶ 8, 9, 15-18. The LaPlante/Race Creditors, who timely filed a claim of $663,267.60, $331,358.41 of which is asserted as secured, also objected on similar grounds. See LaPlante/Race Obj. ¶¶ 11, 13, 14, 15. Both objecting parties argue that Rule 3002(c)(A) requires both insufficient notice to the moving creditor and an untimely filing of the creditor's matrix to for the Court to extend the time for creditors to timely file a proof of claim. They argue that because the Debtor timely filed a list of creditors, even if that list was incomplete, the Court may not grant the Sim/Sekelsky Creditors relief. See Nehra Opp'n ¶¶ 13-16, Dkt. No. 96; LaPlante/Race Obj. ¶¶ 13-14.

Discussion

Due process generally requires that a known creditor of a debtor is entitled to actual notice of a claims bar date before its claim can be extinguished. City of New York v. New York, N.H. & H.R. Co., 344 U.S. 293, 296-97 (1953). The Bankruptcy Code and Rules contain provisions intended to provide due process to claimants. Pursuant to Rule 3002(c), a proof of claim in a voluntary Chapter 7 case is "timely filed not later than 70 days after the order for relief," unless one of seven enumerated exceptions apply. Fed. R. Bankr. P. 3002(c). Pursuantto Rule 9006(b)(3), the Court may enlarge the time for taking action under Rule 3002(c) "only to the extent and under the conditions stated in [that rule]." Id. at 9006(b)(3). In relevant part, Rule 3002(c) provides:

(6) On motion filed by a creditor before or after the expiration of the time to file a proof of claim, the court may extend the time by not more than 60 days from the date of the order granting the motion. The motion may be granted if the court finds that:

(A) the notice was insufficient under the circumstances to give the creditor a reasonable time to file a proof of claim because the debtor failed to timely file the list of creditors' names and addresses required by Rule 1007(a) . . . .

Id. at 3002(c)(6)(A).

The parties disagree whether Rule 3002(c)(6)(A) is applicable in this case, where the Debtor timely filed a list of creditors, but it was incomplete as it omitted the Sim/Sekelsky Creditors, notwithstanding that the Debtor had actual notice of their claims. Some courts have determined that Rule 3002(c)(6)(A) is applicable to serve as the basis for a creditor to seek to extend time to file a claim where the debtor filed a timely list of creditors, but the list is otherwise incomplete. See, e.g., In re Vanderpool, 606 B.R. 425, 431 (Bankr. D. Colo. 2019) (holding that timely filing an incomplete matrix did not constitute the filing of a "full and complete" matrix, and therefore Rule 3002(c)(6)(A) permitted an extension of the bar date for an omitted creditor). Other courts have taken a more literal approach to interpreting the provision. See, e.g., Brenner's Restoration v. Somerville (In re Somerville, 605 B.R. 700, 706-07 (Bankr. D. Md. 2019) (discussing conflicting authority and deciding in a Chapter 13 case that the "plain meaning" of Rule 3002(c)(6)(A) meant that the timely filing of an incomplete matrix was sufficient to make that rule make inapplicable to an unlisted creditor's extension request). It is not necessary for this Court to reach whether Rule 3002(c)(6)(A) is applicable, however, because§ 726(a)(2)(C) is applicable and affords similar relief to that sought by the Sim/Sekelsky Creditors. See, e.g., 11 U.S.C. § 726(a)(2)(C); In re Feldman, 261 B.R. 568, 575 (Bankr. E.D.N.Y. 2001) (explaining "[t]he legislative purpose of [§] 726(a)(2)(C) is to permit distribution to creditors that tardily filed claims if their tardiness was due to lack of notice or knowledge of the case").

In a Chapter 7 case, a claim that is not "timely filed" is entitled to a distribution along with timely filed claims if the claim meets the requirements of § 726(a)(2)(C).² 11 U.S.C § 726(a)(2)(C). Section 726 provides that after payment of timely filed § 507 priority claims, property of the estate is to be distributed:

(2) second, in payment of any allowed unsecured claim, other than a claim of a kind specified in paragraph (1), (3), or (4) of this subsection, proof of which is-

(A) timely filed under section 501(a) of this title;

(B) timely filed under section 501(b) or 501(c) of this title; or

(C) tardily filed under section 501(a) of this title, if-

(i) the creditor that holds such claim did not have notice or actual knowledge of the case in time for timely filing of a proof of such claim under section 501(a) of this title; and

(ii) proof of such claim is filed in time to permit payment of such claim;

(3) third, in payment of any allowed unsecured claim proof of which is tardily filed under section 501(a) of this title, other than a claim of the kind specified in paragraph (2)(C) of this subsection....

11 U.S.C. § 726(a). For a claim filed after the bar date to be entitled to distribution in the same priority as timely filed general unsecured claims in a Chapter 7 case, the holder of that claim must establish two things: (1) it did not have notice to allow it to timely file a proof of claim and (2) the claim was filed in time to permit payment of the claim. See 11 U.S.C. § 726(a)(2)(C). "The purpose of § 726(a)(2)(C) is 'to permit distribution to creditors that tardily file claims if their tardiness was due to lack of notice or knowledge of the case. Though it is in the interest of the estate to encourage timely filing, when tardy filing is not the result of a failure to act by the creditor, the normal subordination penalty [of § 726(a)(3)] should not apply.'" In re Jemal, 496 B.R. 697, 702 (Bankr. E.D.N.Y. 2013) (quoting H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 383 (1977), U.S. Code Cong. & Admin. News 1978, pp. 5963, 6339). The treatment of "late-filed" claims where a creditor did not have sufficient notice in cases under other Chapters of the Bankruptcy Code is different, but § 726(a)(2)(C) directly addresses this circumstance in cases under Chapter 7.

The unrebutted affidavits submitted by the Sim/Sekelsky Creditors establish that they did not receive notice of the Debtor's bankruptcy case until March 24, 2020. See 2nd Calabrese Aff. ¶¶ 11, 13; Aff. of Danny Sekelsky ¶ 12; Aff. of Jacqueline Sekelsky ¶ 12; Aff. of Mandy Sim ¶ 12; Aff. of Malcolm Sim ¶ 12. The Court's docket reflects that no distribution has yet been made in this case that would prevent payment of a distribution to the Proposed Claim.³ As such, the two requirements set...