Matter of Papp Intern., Inc.
| Decision Date | 16 November 1995 |
| Docket Number | Bankruptcy No. BK91-81297. |
| Parties | In the Matter of PAPP INTERNATIONAL, INCORPORATED, Debtor. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Nebraska |
COPYRIGHT MATERIAL OMITTED
Tammy Weissert, Omaha, NE, for trustee.
Robert Metcalfe, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, DC, for I.R.S.
Henry Carriger, Omaha, NE, for I.R.S.
T. Randall Wright, Omaha, NE, for Estate of Papp.
Robert Ginn, Omaha, NE, for petitioning creditors.
Wm. Biggs, Omaha, NE, for individual petitioning creditors.
Hearing was held on September 29, 1995, on the Motion to Allow Claim filed by United States of America on behalf of the Internal Revenue Service (IRS). Appearances: Tami Weissert, Attorney for trustee; Robert Metcalfe, Attorney for IRS; Henry Carriger, Attorney for IRS; T. Randall Wright, Attorney for Estate of Papp; Robert Ginn, Attorney for Petitioning Creditors; and Wm. Biggs, Attorney for Individual Petitioning Creditors. This memorandum contains findings of fact and conclusions of law required by Fed.Bankr.R. 7052 and Fed.R.Civ.P. 52. This is a core proceeding as defined by 28 U.S.C. § 157(b)(2)(A) and (B).
An order for relief under Chapter 11 of the Bankruptcy Code was entered against the debtor, Papp International, Inc., on August 12, 1991, after an involuntary petition for relief was filed. A trustee was appointed. In the present matter before the Court, the United States on behalf of the Internal Revenue Service is requesting permission to file the proof of claim after the expiration of the claims bar date. The motion is brought pursuant to the "excusable neglect" standard at Bankruptcy Rule 9006(c). FED.R.BANKR.P. 9006(b)(1) hereinafter IRS shall refer to the moving party.
The debtor, a Nebraska corporation, was formed on August 11, 1980, to develop and market the "Papp engine." The Papp engine allegedly turned atomic energy into kinetic energy by mixing noble gases and other chemical agents. The anticipated benefits of the Papp engine over a conventional engine are the following: efficiency; the creation of a long-lasting fuel source; cost savings; and zero pollution emissions. The primary asset of the debtor is the patent for the Papp engine which was granted on January 31, 1984 as patent number 4,428,193 and was assigned to the debtor.
At the time the debtor was incorporated, the majority shareholder of the debtor was the inventor of the Papp engine, Joseph Papp (Papp), but several other parties were also granted shares of stock in exchange for capital contributions. Some of the initial minority shareholders are the Petitioning Creditors, who filed the involuntary bankruptcy petition and have objected to the present motion of the IRS.
Both before and after the debtor was incorporated, Papp convinced several additional people and/or entities across the country to invest money in the development of the Papp engine. These contributions totaled in excess of several million dollars. Whether Papp was acting on behalf of the debtor, other corporate entities or himself when soliciting funds, or whether the contributors became owners of the patent, creditors of Papp or interest holders in an entity related to Papp has been the subject of several lawsuits across the country, both before and since the order for relief in this case. Since Papp's death in 1989, his remaining heirs (the Estate) have actively participated in all of the ongoing litigation and desire to retain any and all interests that Papp possessed in the patent and in documents or research related to the patent.
Despite Papp's gift for attracting investors in the Papp engine, Papp did not make any apparent progress developing the Papp engine into a commercial product, but Papp did spend all of the investors' money. It appears that much of the money invested in the debtor or raised by the debtor was spent by Papp on his personal and/or business expenses. The debtor did not succeed in commercially developing the Papp engine and is a semidormant corporation with the patent being the main asset of the debtor.
The Petitioning Creditors started the debtor's bankruptcy case with the desire to settle or set aside all claims to the patent and its technology so the debtor or its successor or assigns can pursue the commercial potential of the technology prior to the impending expiration of the patent. Despite the complexity of the ongoing litigation and the risk that the patent may not realize a return, the Petitioning Creditors, the Estate, and other parties claiming an interest in the debtor or the patent are hopeful that if all of the competing claims can be resolved and if all of Papp's research on the patent can be collected, the remaining interest holders can either market or sell the Papp engine and generate a return on their investment.
The debtor did not list the IRS on its bankruptcy schedules. The IRS was, however, listed on the debtor's matrix and did receive the Notice of Commencement of Case Under Chapter 11 of the Bankruptcy Code, Meeting of Creditors, and Fixing of Dates (Corporation/Partnership Case) filed on August 29, 1991 hereinafter "the Notice" shall refer to this document. The Notice set December 19, 1991 as the deadline to file a proof of claim. The IRS did not file a proof of claim in this case until September 27, 1993, when a proof of claim for $1,072,203.99 was filed based upon the debtor's estimated corporate income tax liabilities for the tax years ending July 31, 1981 through July 31, 1984. The estimates of income tax liability are apparently based on income received by the debtor from selling licensing rights in the patent to third parties. The IRS did not move to seek permission from the Court to file the proof of claim out of time until October 5, 1994.
The trustee of the debtor's bankruptcy estate, the Estate, the Petitioning Creditors and the Individual Petitioning Creditors are opposed to the Motion to Allow Claim filed by the IRS. It is their position that the IRS should not be permitted to file a late claim because the IRS cannot meet the "excusable neglect" standard under Bankruptcy Rule 9006(c). FED.R.BANKR.P. 9006(b)(1). The Petitioning Creditors have filed a plan of reorganization in this case. The Estate and another entity, Universal Power Concepts (UPC), have filed a competing plan of reorganization. Neither plan nor accompanying disclosure statements have been approved, but both plans treat the IRS's claim as disallowed against the bankruptcy estate.
The IRS has shown that the failure to file a timely proof of claim is attributable to "excusable neglect" under Bankruptcy Rule 9006(b). Therefore, the IRS's claim for $1,072,203.99 is permitted to be filed late. However, the claim is not allowed by this order. All objecting parties are granted sixty days to file objections to the claim on the merits.
In Chapter 11 cases, a proof of claim is filed pursuant to Bankruptcy Rule 3003(c), which provides:
Bankruptcy Rule 3003(c) is read in conjunction with Bankruptcy Rule 9006(b)(1), which provides an exception to the requirement under Rule 3003(c) that a proof of claim should be filed before the claims bar date:
When an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court, the court for cause shown may at any time in its discretion . . . on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.
The Supreme Court defined the term "excusable neglect" in Pioneer Inv. Servs. v. Brunswick Assoc. Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). Similar to the present case, Pioneer involved a creditor in a Chapter 11 case who was seeking an extension of the claims bar date under Rule 9006(b)(1) after the claims bar date had expired. The five justice majority of Pioneer held that Congress intended Rule 9006(b)(1) to be a flexible rule, and defined neglect broadly, permitting courts "to accept late filings caused by inadvertence, mistake, or carelessness, as well as by intervening circumstances beyond the party's control." Id. at 388, 113 S.Ct. at 1495.
After determining that "neglect" is not limited to situations where the failure to timely file was beyond the control of the filer, the majority held that an equitable evaluation must be made to determine whether the neglect was "excusable." Id. at 394-95, 113 S.Ct. at 1498. The Court then determined that the following non-exhaustive list of factors should be considered in each case to determine whether the neglect is "excusable":
To continue reading
Request your trial
-
In re Mason
... ... EDMONDS, Chief Judge ... The matter before the court is the final trial of the trustee's complaint to avoid ... Tyler v. Swiss American Securities, Inc". (In re Lewellyn & Co., Inc.), 929 F.2d 424, 427 (8th Cir.1991) ... \xC2" ... ...