In re Sems Music Co., Inc., Bankruptcy No. 77-30961.
| Decision Date | 02 November 1982 |
| Docket Number | Bankruptcy No. 77-30961. |
| Parties | In re SEMS MUSIC COMPANY, INC., Debtor. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Middle District of Tennessee |
James William Hofstetter, Jr., Nashville, Tenn., Trustee.
Joel H. Moseley, Moseley & Elliott, Nashville, Tenn., for Guthrie, unsecured creditor.
W. Ovid Collins, Jr., Nashville, Tenn., for Warner Brothers Publications, Inc.
C. Kinian Cosner, Jr., Cosner, Waldschmidt & Crocker, Nashville, Tenn., for trustee.
This matter is before the court upon the trustee's recommendation that proof of claim No. 35 filed by Warner Brothers Publications, Inc. ("Warner") be disallowed as untimely. After a review of the applicable authority, the briefs and arguments of the parties, and the record of the proceedings, the court determines that the claim was not filed within the period required by Rule 302(e) of the Federal Rules of Bankruptcy Procedure and, therefore, must be disallowed. The court declines to exercise its equitable authority to enlarge the prescribed filing period or to treat the late filing as an allowable amendment. The court finds, however, that a claim in the amount of $6,000 should be allowed as timely filed within the meaning of Rule 302(e)(3) of the Federal Rules of Bankruptcy Procedure.
The following shall constitute findings of fact and conclusions of law pursuant to Rule 752 of the Federal Rules of Bankruptcy Procedure.
On June 22, 1977, an involuntary bankruptcy petition was filed against Sems Music Company, Inc. ("Sems"). Sems was adjudicated a bankrupt on February 17, 1978. On May 19, 1978, "Statements of Affairs of a Bankrupt Engaged in Business" (with attached schedules) were filed in the bankruptcy proceeding. On May 25, 1978, exhibit A to schedule A-3 was filed listing Warner as an unsecured creditor in the amount of $42,324.04. On June 9, 1978, the clerk of court mailed to all scheduled creditors, including Warner, an "Order For The First Meeting Of Creditors And Fixing Time For Filing Objections To Discharge And For Filing Complaint To Determine Dischargeability Of Certain Debts Combined With Notice Thereof And Of Automatic Stay." June 28, 1978 was set as the date for the first meeting of creditors. The appointed trustee instituted an adversary proceeding against Warner on August 16, 1978 seeking to recover an alleged preference in the amount of $12,517.21. The parties settled the matter on November 21, 1978 after Warner agreed to pay the trustee $6,000. An order approving the settlement was entered on December 11, 1978, and became final December 21, 1978. On January 22, 1979, Warner filed its only proof of claim in this case, claim No. 35 in the amount of $26,979.60.
Warner's proof of claim is not allowable because it was untimely filed. The Bankruptcy Act required that proofs of claim be filed before a creditor could share in the distribution of the bankrupt's estate and established a specific time limit within which claims must be filed.1 Rule 302(e), which implemented these Act requirements, provides that "a claim must be filed within 6 months after the first date set for the first meeting of creditors." December 28, 1978, therefore, was the last day Warner could timely file its proof of claim.
Warner does not dispute its failure to satisfy the December 28 deadline. Counsel argues, however, that Warner's claim falls within one of the enumerated exceptions to Rule 302(e). Specifically, Warner relies on Rule 302(e)(3) which states in pertinent part:
A claim which arises in favor of a person or becomes allowable because of a judgment for the recovery of money or property from such person or because of a judgment denying or avoiding a person\'s interest in property may be filed within 30 days after such judgment becomes final,. . . . 2
Warner asserts that its entire claim did not arise or become allowable until the judgment settling the preference action became final. The court does not agree with this broad interpretation of 302(e)(3). Accepting such an interpretation would eviscerate the very narrow, specific exception to the six-month bar rule contained in Rule 302(e)(3). The special 30-day grace period was intended to prevent the injustice that might result if recovery was denied for claims arising after the six-month period had already expired; it was not intended to provide blanket excuse for avoiding filing requirements by parties involved in adversary proceedings. The plain language of the rule and the statute limits the 30-day grace period to claims stemming from the judgment itself. The section does not provide that otherwise time-barred claims of the creditor are resurrected by virtue of a recovery by the trustee. While the court agrees that a $6,000 claim arose "by reason of recovery by the trustee," the balance of Warner's claim existed prior to the filing of the bankruptcy petition and was allowable at the time of the petition and throughout the pendency of the adversary proceeding. The only portion of Warner's claim which arose through the preference action and, therefore, the only portion of the claim for which a timely proof was filed is the $6,000 recovered in settlement of the preference action.
Warner's argument that the settlement order contemplated a full 30-day period to file its entire claim is unpersuasive. The order of December 11, 1978 approving the settlement provided that the agreement would not affect the rights of Warner "to file a proof of claim and participate in distributions made to unsecured creditors by the trustee." The order, however, further specified that the filing of a claim must be effectuated within the "statutory period." The order cannot be construed to envision an extension of the statutory deadline. Time was available to comply. Warner had 37 days from the date of compromise and 17 days from entry of the court order to complete a filing. If Warner encountered difficulty in effectuating a filing within that period, an appropriate motion could have been filed pursuant to Rule 906 of the Federal Rules of Bankruptcy Procedure,3 for an extension of time to complete a filing. Warner filed 25 days after the express statutory deadline. The balance of Warner's claim cannot be allowed.
As an alternative position, counsel requests this court to apply its equitable authority and excuse Warner's late filing. Warner points to the facts that its claim was listed by the bankrupt on the schedule of creditors, that the trustee was aware of the claim, that the holiday season intervened, and that only a short period of time existed between settlement of the adversary proceeding and the expiration of the statutory deadline. The bankruptcy court is expressly limited in its discretion to extend the filing deadline after its expiration. Rule 906 of the Federal Rules of Bankruptcy Procedure governing the enlargement of time explicitly excludes Rule 302(e) from discretionary enlargement once the time period has expired.4
The courts are virtually unanimous in holding that the filing deadline may not be extended once it expires and that the court's equitable authority is not thereafter available. The Eighth Circuit has noted that "the statute requiring proofs of claim be filed within the prescribed period is clear, positive, and unambiguous and must not be nullified in the name of equity." Tarbell v. Crex Carpet Co., 90 F.2d 683, 685 (8th Cir.1937). This court has discussed the strict construction applicable to the filing requirements as follows:
The better view, and the view followed by the majority of courts, is that the court\'s equitable powers must be exercised within the limits established by the Act, and the court may not extend the clear, mandatory, and immutable time limits for the filing of claims imposed by § 57(n). (citations omitted.)
In re Peterman, Bk. No. 78-30677 and 78-30678, slip op. at n. 3, (Bankr.M.D.Tenn. Dec. 16, 1980). See also In re Pigott, 684 F.2d 239, 242 (3rd Cir.1982); Hoos & Co. v. Dynamics Corp. of America, 570 F.2d 433, 439 (2d Cir.1978); Tarbell v. Crex Carpet Co., 90 F.2d at 685; In re Paul R. Dean Co., 460 F.Supp. 447, 452 (W.D.N.Y.1978); S.E.C. v. J. Shapiro Co. (In re Securities Investor Protection Corp.), 414 F.Supp. 679, 683 (D.Minn.1975); In re Vega Baja Lumber Yard, Inc., 285 F.Supp. 143, 145 (D.P.R. 1968); L.O. Koven and Brother, Inc. v. Local No. 5767, United Steelworkers, 250 F.Supp. 810, 816 (D.N.J.1966); In re Moro Supply Co., 229 F.Supp. 129, 131 (E.D.Ark. 1963); In re Aero Bulk Manufacturing Co., 221 F.Supp. 627, 633 (W.D.Mo.1963); In re Alsted Automotive Warehouse, Inc., 16 B.R. 924, 925 (Bkrtcy.E.D.N.Y.1982); In re Brown, 14 B.R. 233, 234 (Bkrtcy.N.D.Ill. 1981).
Courts that have allowed extension or waiver of the filing deadline have done so only in cases where a creditor was without notice of the claim, where an act of fraud had been perpetrated, or where "extraordinary" facts justified a suspension. See, e.g., In re Pigott, 684 F.2d at 244 (); U.S. v. Kennedy (In re H & C Table Co.), 457 F.Supp. 858, 860 (W.D.Tenn.1978) (); In re Martin Edsel, Inc., 228 F.Supp. 538, 541 (D.N.H.1963) (). The facts of this case do not support such a waiver. Warner has alleged no fraud and there were no events which intervened during the six-month period that would provide an adequate basis for finding extraordinary circumstances. Warner was fully aware of the bankruptcy filing as evidenced by the certified notice of the meeting of creditors and Warner's participation in the adversary proceeding. When a creditor has such complete knowledge of the claim, an extension of filing time is generally not...
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