In re Webb, Bankruptcy No. 80-00201-HB.
| Decision Date | 26 January 1981 |
| Docket Number | Bankruptcy No. 80-00201-HB. |
| Citation | 8 BR 535 |
| Parties | In re John Q.A. WEBB. |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
Ann Ryan Robertson, Margraves, Kennerly & Schueler, Houston, Tex., for Cullen Center Bank.
Robert M. Freedman, Houston, Tex., for John Q.A. Webb, debtor.
Daniel E. O'Connell, Houston, Tex., trustee.
This case presents yet another aspect of a very difficult area. The issue here is whether a creditor has established "excusable neglect" under Bankruptcy Rule 906(b)(2) to cause the Court to allow the creditor to file a complaint to determine the dischargeability of its debt after the filing deadline but before the granting of the discharge.
The facts are as follows: John Webb filed a voluntary petition in Chapter 7 on February 7, 1980. On March 24, 1980 creditors were noticed of the § 341 meeting set for April 15, 1980. Cullen Bank & Trust (Cullen) forwarded notice of the § 341 meeting to Ann Ryan Robertson (attorney for Cullen) on April 16, 1980 — the day after the meeting. The notice indicated that the last day for filing a complaint to determine the dischargeability of a debt pursuant to § 523 was June 15, 1980. On June 6, 1980 Cullen's attorney filed a proof of claim in behalf of Cullen Bank & Trust for a debt in excess of $26,000.
On October 27, 1980 Cullen's attorney moved for additional time to file a complaint to except Cullen's debt from discharge (not yet granted). The motion was made over four months after the June 15 deadline. Cullen's attorney stated in an affidavit that as of June 6, 1980 no agent, officer, or employee of Cullen had indicated that there might be grounds for an exception to discharge. Brian Cogburn, loan review officer for Cullen, said in another affidavit that he was charged with Cullen's file on the debtor "during the latter part of June," and that "sometime during the middle of August, he became aware that fraud could be an exception to the dischargeability of a debt and that there might be a possibility that Dr. Webb was guilty of fraud."
Cullen argues that if its motion for a time extension is denied and the debtor is granted a discharge, it will be unable to seek revocation of the discharge pursuant to § 727(d) because that section applies only when fraud is discovered after a discharge has been granted. Cullen urges that its untimely action was the result of "excusable neglect."
Rule 409(a)(2) provides that the court may fix a time not less than thirty days and not more than ninety days after the date set for the § 341 meeting for the filing of a complaint to determine the dischargeability of a debt. Rule 404(c) states that the court may for cause, on its own initiative or on application of any party in interest, extend the time for filing a complaint objecting to discharge. Rule 906(b)(1) grants the court discretion to extend the time for filing a complaint objecting to discharge provided the "period originally prescribed" has not expired. When this time has passed, Rule 906(b)(2) provides that the court may grant an extension only upon application showing "excusable neglect." Some decisions rendered just after the Bankruptcy Rules became effective October, 1973, construed the term "after the period originally prescribed" in Rule 906(b)(2) to mean the maximum ninety days after the § 341 meeting so that if an application to extend was made after the date fixed by the court but within the ninety-day period, it should be granted under (b)(1) without the necessity of showing "excusable neglect." Keenan v. Builders Appliances, Inc., 384 F.Supp. 14 (E.D.Wis., 1974). Other courts, however, declined to follow this rationale. Loving v. Lee, 4 BCD 585 (E.D. Va., 1978). One court concluded that through the application of Rule 404(c) it was not necessary to show excusable neglect, In re Pinemont Development Co., 1 BCD 152 (N.D.Miss., 1974), but this decision has not been followed in other jurisdictions. But see In re Young, 1 B.R. 387, 390 (M.D. Tenn., 1979). Cullen moved for additional time to file a complaint to except its debt from discharge over four months after the deadline for filing such complaints; Rule 906(b)(1) thus does not apply and it is necessary for the court to find excusable neglect to allow the untimely filing.
A finding of excusable neglect should be formal with an evidentiary basis. In re Capshaw, 423 F.Supp. 1388 (E.D.Va., 1977). In such a situation the movant has the burden of proof. In re McFarland, 4 CBC 77 (W.D.Va., 1975). The term "excusable neglect" was defined recently in Beneficial Finance Co. of Hartford v. Manning, 4 BCD 304 (D.Conn., 1978):
The words excusable neglect are words of art, and are subject to the interpretation of the trier. The court has interpreted `excusable neglect\' as meaning the failure to timely perform a duty due to circumstances which were beyond the reasonable control of the person whose duty it was to perform. 4 BCD at 305
Excusable neglect has been construed by the federal courts to be a flexible concept requiring a showing of good faith by the party seeking enlargement, a reasonable basis for noncompliance within the specified period, and a lack of prejudice resulting to the opposing party. In re Murphy, 1 BR 736 (S.D.Cal., 1979).
The courts have been most inclined to conclude that neglect was excusable whenever there was doubt as to whether a creditor had received adequate notice of a deadline for filing complaints. Federal Insurance Co. v. Loveridge, 1 BCD 1597 (D.Conn., 1977). On the other hand, the courts have been less inclined to find excusable neglect when untimely action resulted from a failure to "discover the law relating to the filing of a complaint to determine the dischargeability of a debt until after the time therefor had expired." In re Molnar, 2 CBC 174 (W.D.Pa., 1974).
The court held In re Sharp, 1 CBC 43 (S.D.Md., 1974) that a credit union (Farmer's Production Credit Association) was in the business of extending credit to many individuals who may file bankruptcy and must be charged with a greater degree of knowledge as to the law and the rules of the court than the average non-business creditor. Cullen is a lending institution and, like the credit union in Sharp, must be charged with a greater degree of knowledge as to the law and procedure than the average non-business creditor. It appears, however, that Cullen was unaware of its rights and responsibilities. Cullen did not forward notice of the § 341 meeting to its attorney until April 16, 1980 — the day after the meeting. Although the deadline for filing a complaint to determine the dischargeability of a debt was June 15, 1980, Cullen's file on the debtor was not forwarded within the bank to Brian Cogburn, loan review officer for Cullen, until the "latter part of June." And even though Mr. Cogburn is the loan review officer for Cullen, he stated in an affidavit that not until "sometime during the middle of August, 1980" did he become aware that "fraud could be an exception to the dischargeability of a debt." Mr. Cogburn indicated in the same affidavit that he did not even begin investigating the debtor's file until "sometime during the middle of August, 1980" though he had possession of that file since "the latter part of June."
In re Goode, 3 BR 207 (W.D.Va., 1980) was a case involving a bank which had full knowledge of a bankruptcy proceeding and the deadline for filing complaints respecting dischargeability of debts but which was allegedly "confused" as to proper court procedure and did not bring a dischargeability question to its counsel's attention until after the discharge had been granted. The court said that the deadline for filing complaints pertaining to dischargeability questions should have put the bank on notice. The court commented that "It would seem that a creditor's uncertainty as to its remedy would require something more than routine handling and therefore counsel's advice and guidance should have been sought long before the deadline clearly fixed for filing complaints." 3 BR 207, 209. The court concluded that "Neglect of responsibility is in itself...
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