In re Las Uvas Valley Dairies
| Docket Number | 17-12356-t11 |
| Decision Date | 01 October 2021 |
| Parties | In re: LAS UVAS VALLEY DAIRIES, Debtor. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of New Mexico |
Although the bar date in this case was January 3, 2018, Jeani Anderson filed her proof of claim in April 2021. Before the Court is Anderson's motion to deem her proof of claim timely filed. Her asserted reasons for the late filing are than she did not get notice of the bar date and that she did not know she had a claim against Debtor until shortly before she filed her proof of claim. The Court held a final hearing on the motion on August 17, 2021. Being sufficiently advised, the Court finds and concludes that Anderson is not bound by the bar date because she was not given adequate notice of it. In addition, the Court finds and concludes that Anderson has shown excusable neglect in not filing her claim before she did. While the Court makes no ruling on the merits of Anderson's claim, it will not be disallowed for untimeliness.
The Court finds:[1]
Anderson is a registered interior designer, licensed in the state of Texas. Dean and Frances Horton were general partners of the Debtor Las Uvas Valley Dairies, a general partnership.
Anderson met the Hortons in 1980. Between 1980 and 2016, the Hortons hired Anderson to do ten or more interior design projects for them.
Anderson's interior design services included working with the Hortons to develop an aesthetic concept for each project; sourcing furniture, fixtures, and other materials; acting as the Hortons' representative with the vendors; obtaining favorable price and terms; and ensuring that the vendors were paid the correct amount. In exchange, the Hortons paid Anderson 10% of the total project cost, which rate, according to Anderson, is common in the interior design industry. With relatively few exceptions, Anderson's payments were from checks written on Debtor's operating account, rather than from the Hortons' personal account. The same was true for checks to the vendors Anderson dealt with on the Hortons' behalf.
In 2004, the Hortons hired Anderson to assist them with the interior design of a very expensive house they planned to build near their dairy in the Hatch Valley, New Mexico. The 22, 000 square foot house has 88 rooms and is on at least 184 acres (the "House"). The Hortons spent about $15, 000, 000 on the House and furnishings, almost all of which came from Debtor.
On December 13, 2012, Debtor conveyed the House and about 184 acres to the Hortons. The Hortons moved into the House in October 2014.
The Hortons were unable to pay the construction and other costs for the House as they came due. To assist the Hortons with their financial difficulties, Anderson agreed to defer the payment of her claimed $1, 500, 000 fee until all vendors were paid. She also helped the Hortons negotiate with the vendors about the timing and amount of their payments.
In 2016 the Hortons made payments to Anderson totaling about $75, 000. The payments were irregular and did not adhere to an informal agreement the parties had reached about paying the fee. On December 2, 2016, Anderson sued the Hortons and Las Uvas Valley Dairy, LLC[2] in federal court to collect her fee. The docket does not show that the complaint and summonses were ever served on the defendants. Instead, Anderson and the Hortons settled the lawsuit almost immediately, whereupon Anderson dismissed it with prejudice. Under their settlement agreement, the Hortons agreed to pay Anderson $200, 000 down and 48 monthly installments of $16, 000, for a total of $968, 000. Anderson waived the balance of her fee claim. The settlement agreement contained mutual releases between Anderson and the Hortons. Anderson's release of the Hortons did not release any claims she may have had against Debtor. The LLC did not sign the settlement agreement and was not mentioned in it. However, the dismissal with prejudice dismissed all of Anderson's claims against the LLC.
On September 15, 2017, Debtor filed this case. The claims bar date was set for January 3, 2018. Anderson did not receive written notice of the bankruptcy case or the bar date. Debtor did not publish notice of the bar date in any newspaper or other media. Anderson learned about the case from other sources about 90-120 days after it was filed, i.e., between December 15, 2017-January 15, 2018. She did not file a proof of claim by the bar date. About 50 non-insider creditors timely filed claims, which totaled about $51, 800, 000.[3] The largest claims were filed by Metropolitan Life Ins. Co. ($28, 187, 302) and Farm Credit/PCA (three claims totaling $17, 565, 812).
An unsecured creditors' committee was appointed in the case. The committee and its counsel were active, negotiating with Debtor, Met Life, and PCA to maximize the dividend to unsecured creditors.
Primarily because of a lack of cash, Debtor's attempt to reorganize soon failed. On May 9, 2018, Met Life, PCA, and the UCC filed a joint plan of liquidation. The Court confirmed the plan, as amended, on June 14, 2018.
Under the confirmed plan, a liquidating trustee was appointed to liquidate Debtor's assets. On July 31, 2018, Robert Marcus became the successor liquidating trustee. The confirmed plan required a $1, 000, 000 partial distribution to general unsecured creditors by September 30, 2018. The payment was timely made.
The Hortons did not pay Anderson as agreed under their settlement agreement. On July 6, 2018, Anderson sued the Hortons in federal court to enforce the agreement. Unlike the first lawsuit, this one was not settled. Anderson served process on the Hortons, who answered the complaint. A scheduling order was entered and a bench trial was set for March 24, 2020. Anderson filed a motion for writ of attachment in April 2019. On May 17, 2019, before the court could rule on the motion, the Hortons filed a chapter 7 bankruptcy case. The Hortons listed the House on their bankruptcy schedules, showing a value of $6, 900, 000.
Clarke Coll was appointed the chapter 7 trustee in the Hortons' case. He filed a report of assets and an August 26, 2019, bar date was set. Anderson was on the creditors' list and received written notice of the bar date. She timely filed a proof of claim in the Hortons' case for $962, 000.[4] On January 31, 2020, Marcus sued the Hortons and Coll in the Hortons' bankruptcy case, alleging that the money to build and furnish the House came from the Dairy by a series of fraudulent transfers, and asking that the House be declared held in constructive trust for the benefit of Debtor's creditors. When Anderson learned of the constructive trust proceeding, she spoke to Coll about it several times. He told her he would vigorously defend the proceeding and that, in his opinion, it was unlikely the Court would impose a constructive trust on the House. He also opined that, in general, constructive trusts were not viewed favorably by bankruptcy courts.
Coll filed a motion to dismiss the adversary proceeding on May 8, 2020, arguing that Marcus had not stated a claim under a constructive trust theory. The Court denied the motion on June 26, 2020, ruling that the liquidating trustee stated a claim for constructive trust. The Court withheld judgment on Coll's argument that his § 543(a)(3) "strong arm" power could defeat any constructive trust that might burden the House, but ruled that the argument did not require dismissal under Fed.R.Civ.P. 12(b)(6).
On July 14, 2020, the Court entered a stipulated order approving a $2, 625, 000 sale of the House and 184 acres; certain personal property in the House; and an additional 394 acres next to the House that was titled in Debtor's name. The sale closed on or about July 20, 2020, and the net purchase price, after paying brokers' commissions, property taxes, and other closing costs, was given to Coll to hold pending resolution of the constructive trust proceeding.
On October 15, 2020, Coll and Marcus filed a joint motion to approve an agreement settling, inter alia, the constructive trust proceeding. Under the proposed settlement, Marcus would receive about $2, 100, 000, Coll would receive about $420, 000, and the Hortons would receive $60, 000.
Anderson filed an objection to the proposed settlement. The Court set a hearing on the motion and objection for January 7, 2021. Anderson withdrew the objection before the hearing and the Court entered an order approving the settlement on January 13, 2021.
Anderson filed her proof of claim on April 23, 2021, along with her motion to deem the claim timely filed. In the motion, Anderson waived any right she may have had to participate in the initial $1, 000, 000 distribution to general unsecured creditors.
A fundamental right guaranteed by the Constitution is the opportunity to be heard when a property interest is at stake. Specifically, the [bankruptcy] reorganization process depends upon all creditors and interested parties being properly notified of all vital steps in the proceeding so they may have the opportunity to protect their interests.
Selman v. Delta Airlines, 2008 WL 6022017, at *13 (D.N.M.), citing Reliable Elec. Co., Inc. v. Olson Const. Co., 726 F.2d 620, 623 (10th Cir. 1984). "Generally, due process requires:
notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. The notice must be of such nature as reasonably to convey the required information, and it must afford a reasonable time for those interested to make their appearance."
Selman, 2008 WL 6022017, at *13, quoting In re Barton Indus., Inc., 104 F.3d 1241, 1245 (10th Cir.1997) (quoting Mullane v. Cent....
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