In re WT Grant Co., Bankruptcy No. 75B1735(TLB).

Decision Date04 October 1985
Docket NumberBankruptcy No. 75B1735(TLB).
PartiesIn re W.T. GRANT COMPANY, Debtor.
CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

Weil, Gotshal & Manges by Richard Krasnow, Laurie Binder, New York City, for trustee.

Hahn & Hessen by Gilbert Backenroth, New York City, Abelman, Lavine, Krasny, Gold & Levin by Marvin Krasny, Pittsburgh, Pa., for Gralome Corp.

DECISION ON OBJECTION TO AMENDED CLAIM OF GRALOME CORPORATION

TINA L. BROZMAN, Bankruptcy Judge.

By application dated July 18, 1985, the trustee ("Trustee") of W.T. Grant Company ("Grant") reinstituted an earlier objection dated June 3, 1978 to a proof of claim filed May 18, 1978 by Gralome Corporation ("Gralome"). A hearing was held on August 27, 1985 at the conclusion of which this court granted the Trustee's application to expunge the Gralome claim as untimely filed; this opinion provides the basis for that decision. The parties agree on the salient facts but disagree as to the conclusions which flow from them.

On October 2, 1975, Grant filed a petition for an arrangement under chapter XI of the former Bankruptcy Act and by order dated April 13, 197C was adjudged bankrupt. The last date for filing proofs of claim against the Grant estate was January 14, 1977 (the "Bar Date") in accordance with Bankruptcy Act section 57(n) and former Bankruptcy Rule 302(e).

Prior to its bankruptcy, Grant negotiated a financing arrangement with Gralome pursuant to which Gralome acquired and by two net leases demised to Grant two retail stores, one in Homewood, Illinois (the "Homewood Premises") and one in Olean, New York (The "Olean Premises"). Gralome obtained its funds from a consortium of six insurance companies (the "lenders") with whom it entered into several note purchase agreements and on whose behalf it entered into an indenture of mortgage which, by amendment, covered both the Homewood and Olean Premises. During Grant's tenure as a debtor in possession it rejected the lease for the Homewood Premises (the "Homewood Lease"); thereafter, but before the Bar Date, the trustee rejected the lease for the Olean Premises (the "Olean Lease").

On March 19, 1976, Gralome filed a proof of claim arising from Grant's rejection of the Homewood Lease (the "First Proof of Claim"). At the time that this proof of claim was filed, Grant was still in possession of the Olean Premises. The text of the First Proof of Claim makes no mention of the Olean Lease. A self-styled "statement" accompanying the First Proof of Claim reads at the top:

Gralome Corporation Premises: Store 328 (9758) 3103 West 183rd Street Homewood, Illinois

and identifies the claim as comprising enumerated costs of administration and an unsecured claim. Various exhibits are attached including a portion of the Homewood Lease, notices respecting termination of that lease and surrender of the premises and a title company document. The only reference in the First Proof of Claim to the Olean Lease is that contained in the excerpts from the Homewood Lease itself, annexed as an exhibit to the claim. Specifically, the Homewood Lease defines the term "Olean Lease" ¶ 2 and provides that if there be a default under the Olean Lease, that default will operate as a default under the Homewood Lease ¶ 19.1(h).

On May 18, 1978, more than sixteen months after the Bar Date, Gralome filed what it entitled an "Amended Proof of Claim of Gralome Corp. (Claim No. 519092)" ("Amended Claim") which duplicated the First Proof of Claim insofar as the Homewood Lease was concerned and added claims arising out of the rejection of the Olean Lease. Among the many exhibits annexed to the Amended Proof of Claim was an affidavit of an attorney representing Gralome which states at paragraph 7:

"That as a result of the correspondence with counsel for the trustee, said trustee was aware of the claim for the Olean store and same constitutes an informal filing of a proof of claim pursuant to Bankruptcy Rule 509"

Presumably, the correspondence referred to speaks of a letter to the Trustee's counsel regarding inquiries into various checks issued subsequent to Grant's bankruptcy to the lenders in connection with the Olean Premises. That letter was annexed to the Amended Claim.1

By objection dated June 3, 1978, the Trustee objected to the portion of the Amended Proof of Claim as duplicative that restated the First Proof of Claim and to the portion relating to the Olean Premises as time-barred. Pursuant to an order dated June 29, 1978, the Amended Proof of Claim was reduced to $231,920.51; this limited the estate's maximum liability to that portion which related to the Olean Premises while preserving the Trustee's objection that the claim was time-barred. By order to show cause issued July 23, 1985, the trustee renewed his objection to the Amended Claim.

Gralome proffers two arguments in support of its position that its claim is timely. First, it argues that the Amended Claim involves the same cause of action as the First Proof of Claim inasmuch as both the Homewood and Olean Leases were part and parcel of one financing arrangement which arrangement Gralome asserts is evidenced in the leases and the indenture. Neither was Grant a party to this indenture nor was the indenture annexed to the First Proof of Claim filed prior to the Bar Date. The argument runs that since the Homewood and Olean Leases contain cross-default provisions constituting a default under one a default under the other, when Grant rejected the Homewood Lease, it defaulted under the Olean Lease but damages resulting from that default were unascertainable (because Grant was still in possession under the Olean Lease); therefore, the Amended Claim merely increased the damages asserted under the First Proof of Claim instead of asserting a new cause of action. Significantly, Gralome did not state in the First Proof of Claim that the claim was unliquidated because of the Olean Lease nor did Gralome file a separate unliquidated proof of claim with respect to the Olean Lease.2

Alternatively, Gralome argues that the First Proof of Claim when coupled with correspondence and telephone conversations with the Trustee's counsel constitutes an informal filing subject to later amendment by a formal proof of claim. In particular, Gralome highlights the fact that prior to the rejection of the Homewood Lease Grant issued one check to pay the lease obligations on both premises. Further, an affidavit by Marvin Krasny, counsel for Gralome, states that he recalls his conversation with counsel for the Trustee in June 1976 during which they discussed whether the Olean Premises were occupied or vacated, Krasny's belief that the Homewood and Olean Leases constituted a single financing package and the prospect that Gralome would seek damages respecting the Olean Lease if the property could not be sold or relet.

This court finds that the First Proof of Claim was confined to the Homewood Lease and that the claim therein asserted was separate and distinct from any arising out of the Olean Lease. Further, the court finds that the mere mention of the Olean Premises in the portion of the Homewood Lease annexed as one of the exhibits to the First Proof of Claim coupled with correspondence inquiring about why Grant issued certain checks to the lenders and a conversation with counsel mentioning the possibility that damages may be sought does not amount to an "informal claim" amendable by a subsequently filed formal proof of claim.

Discussion

In setting a bar date, the court prescribes a statute of limitations which has been characterized as a prohibition and been viewed as peremptory.3In re Brill, 52 F.2d 636 (S.D.N.Y.), aff'd per curiam, 52 F.2d 639 (2d Cir.1931); see also In re Pigott, 684 F.2d 239 (3d Cir.1982). Although amendments to proofs of claim should in the absence of contrary equitable considerations or prejudice to the opposing party be freely permitted, In re Commonwealth, 617 F.2d 415, 420-21 (5th Cir.1980); In re Hertz, 38 B.R. 215, 218 (Bankr.S.D.N. Y.1984), such amendments are not automatic but are allowed, "where the purpose is to cure a defect in the claim as originally filed, to describe the claim with greater particularity or to plead a new theory of recovery on the facts set forth in the original claim." Biscayne 21 Condominiums Association, Inc. v. South Atlantic Financial Corp. (In re South Atlantic Financial Corp.), 767 F.2d 814, 819 (11th Cir. 1985) and cases cited therein;4see also In re G.L. Miller & Co., Inc., 45 F.2d 115, 116 (2d Cir.1930). But an absolute prerequisite to allowance of an amendment is the existence of something filed in the bankruptcy court capable of being amended. South Atlantic, supra, at 819; In re International Horizons, Inc., 751 F.2d 1213, 1217 (11th Cir.1985); In re Sems Music Co., 24 B.R. 376, 380 (Bankr.M.D.Tenn.1982). As the Second Circuit recognized in Miller, supra, 45 F.2d at 116, it is wholly inappropriate to use an amendment as a device for filing after the statutory period a claim based on a cause of action of which no notice whatever had been given the trustee by anything previously filed.

Gralome's first argument, that the Amended Claim involves the same cause of action as set forth in the First Proof of Claim, must fail because the newer claim seeks costs of administration and damages from the rejection of an entirely separate lease. The provisions of the Leases themselves lead this court to conclude that they are distinct one from the other. Thus, they are not coterminous; rent is separately established for each; notice of termination of one lease does not terminate...

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