Yoder Co., In re

• Citation: 758 F.2d 1114
• Decision Date: 02 April 1985
• Docket Number: No. 84-3138,84-3138
• Parties: Bankr. L. Rep. P 70,358, 18 Fed. R. Evid. Serv. 547 In re The YODER COMPANY, Debtor. Mark S. BRATTON, Plaintiff-Appellant, v. The YODER COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1114

758 F.2d 1114

Bankr. L. Rep. P 70,358, 18 Fed. R. Evid. Serv. 547

In re The YODER COMPANY, Debtor Mark S. BRATTON, Plaintiff-Appellant, v. The YODER COMPANY, Defendant-Appellee.

No. 84-3138.

United States Court of Appeals Sixth Circuit.

Argued Jan. 24, 1985.

Decided April 2, 1985.

Alexander Jurczenko (argued), Agopian & Jurczenko, Cleveland, Ohio, for plaintiff-appellant.

Michael J. Hartigan, Jr., Squire, Sanders & Dempsey, John C. Parks (argued), Cleveland, Ohio, for defendant-appellee.

Before KENNEDY and CONTIE, Circuit Judges, and HILLMAN, District Judge. ^*

CORNELIA G. KENNEDY, Circuit Judge.

In this Chapter 11 proceeding the Bankruptcy Court, 29 B.R. 299, affirmed by the District Court, held that Mark S. Bratton's products liability claim for the loss of four fingers was barred for failure to timely file a proof of claim. Bratton contends that his claim should not be barred because he did not receive notice of the latest date for filing proofs of claim.

In 1981, Yoder filed a petition requesting relief under Chapter 11 of the Bankruptcy Code. At that time Bratton's products liability suit against Yoder was pending in a Michigan state court. Bratton's claim was listed as a "contingent, unliquidated and disputed" claim in the amended schedule of assets and liabilities filed by Yoder. The Bankruptcy Court issued an order setting July 13, 1981 at the last date for creditors to file proofs of claim against Yoder (the "bar date").

Bratton filed a proof of claim on March 15, 1982, about eight months after the bar date. Yoder applied to the Bankruptcy Court for an order expunging certain products liability claims, including Bratton's. Following a hearing on Yoder's application, at which Bratton was represented, the Bankruptcy Court found that Bratton had been sent sufficient notice of the bar date and that Bratton's failure to file timely proof of claim was not due to excusable neglect. Bratton's claim was therefore barred. The District Court affirmed, and Bratton appeals.

Rule 3001 of the Interim Bankruptcy Rules (which are applicable to this proceeding) provides that: "A proof of claim may be filed at any time prior to the approval of the disclosure statement unless a different time is fixed by the court on notice as provided in Rule 2002." Interim Bankruptcy Rule 2002 provides that "the clerk of the bankruptcy court shall give notice by mail to the debtor, all creditors, equity security holders and indenture trustees of ... the time allowed for filing claims pursuant to Rule 3001." It is undisputed that Bratton's proof of claim was filed after the court-ordered bar date but before approval of the disclosure statement. The remaining question is whether notice of the bar date was sent to Bratton. A creditor's knowledge that a reorganization of the debtor is taking place does not substitute for mailing notice of a bar date. New York v. New York, New Haven & Hartford Railroad Co., 344 U.S. 293, 73 S.Ct. 299, 97 L.Ed. 333 (1953).

The Bankruptcy Court heard evidence concerning the procedure used to mail notices of the bar date. An employee of Yoder testified that he supervised a procedure through which an address label was prepared at Yoder for each creditor listed in Yoder's amended schedule of assets and liabilities, and that the employee and an accountant proofread the address labels to make sure that all listed creditors were included. The address labels and corresponding notices were taken to the clerk of the Bankruptcy Court. Using labels and envelopes it received from the Bankruptcy Court, the Cleveland Letter Service then prepared and mailed the notices. No record of the address labels actually prepared was kept by Yoder, the Bankruptcy Court clerk, or the Cleveland Letter Service; and neither the clerk's office nor the Cleveland Letter Service checked the labels against any list of creditors. Bratton's name and address did not appear on the matrix of creditors that was filed earlier with the Bankruptcy Court. The courtroom deputy docket clerk testified that she did not know whether the labels sent to the Cleveland Letter Service were the labels prepared by Yoder or labels prepared from the matrix in the court's file.

Bratton's address on the amended schedule of assets and liabilities, the list which Yoder's employee testified was used to prepare the labels, was that of his attorney, A.T. Ornstein. Ornstein testified that he had not received notice of the bar date. Attorneys for two other listed products liability claimants also represented that they and their clients had not received notices of the bar date.

The Bankruptcy Court made a factual finding that notice of the bar date had been sent to Ornstein. ¹ The Court did not discuss its reasons for this finding or explain how it weighed the evidence, although the evidence concerning mailing was far from undisputed. Testimony of non-receipt is evidence that the notice was not mailed. Simpson v. Jefferson Standard Life Insurance Co., 465 F.2d 1320, 1323 (6th Cir.1972). We do not need to decide whether the finding that notice was mailed was clearly erroneous, however, because we hold that the Bankruptcy Court abused its discretion in holding that Bratton did not file a late proof of claim as a result of excusable neglect. ² This holding was based on the closely related finding that Bratton's attorney received the notice, which we hold to be clearly erroneous.

Rule 906(b) of the Rules of Bankruptcy Procedure provides that a time period may be extended if failure to act in time "was the result of excusable neglect." ³ The parties disagree over the definition of excusable neglect: Yoder urges as a definition "the failure to timely perform a duty due to circumstances beyond the reasonable control of the person whose duty it was to perform"; Bratton suggests a less restrictive definition. ⁴ Under even Yoder's definition, however, nonreceipt of notice would clearly constitute excusable neglect. The Bankruptcy Court's determination that no excusable neglect existed was based entirely on its finding that notice was received at Bratton's attorney's law firm. We thus turn to the question of whether this finding of receipt was clearly erroneous.

The Bankruptcy Court relied mainly on a presumption of receipt that it held arose from evidence that the notice was properly mailed. The common law has long recognized a presumption that an item properly mailed was received by the addressee. Hagner v. United States, 285 U.S. 427, 52 S.Ct. 417, 76 L.Ed. 861 (1932). The presumption arises upon proof that the item was properly addressed, had sufficient postage, and was deposited in the mail. Simpson v. Jefferson Standard Life Insurance Co., 465 F.2d 1320, 1323 (6th Cir.1972). For purposes of this discussion, we will assume that the presumption of receipt did arise.

The District Court held that the presumption had not been rebutted, reasoning that "testimony amounting to a mere denial that a properly mailed notice was not received is insufficient to rebut the presumption of receipt." ⁵ This statement is inconsistent with prior decisions of this Circuit. In McKentry v. Secretary of HHS, 655 F.2d 721 (6th Cir.1981), the plaintiff and her attorney both filed affidavits that they had not received a notice of reconsideration from the Department of HHS. This Court held that this would have been sufficient evidence of non-receipt to rebut the presumption of mailing, had it arisen. ⁶ In Baldwin v. Fidelity Phenix Fire Insurance Co., 260 F.2d 951, 953 (6th Cir.1958), there was evidence that a notice had been sent to an insurance company and to one of its agents. The agent testified that he had not received the notice. This Court held that the evidence was sufficient to support the jury's finding that notice was not received by the insurance company or the agent. These decisions are in consonance with the general proposition that a presumption is rebutted "upon the introduction of evidence which would support a finding of the nonexistence of the presumed fact." 10 Moore's Federal Practice Sec. 301.04 (2d ed.). Testimony of non-receipt, standing alone, would be sufficient to support a finding of non-receipt; such testimony is therefore sufficient to rebut the presumption of receipt.

The next question is whether the presumption, once rebutted, retains any effect. ⁷ The Bankruptcy Court found that it was "entitled to presume that notice has been received once a proper mailing is made, even though the intended recipient testifies that the notice never really came." The Bankruptcy Court reasoned as follows:

According to the note of the Advisory Committee on Proposed Rules, Federal Rule 301 rejects the so-called "bursting bubble" theory, under which a presumption vanishes upon the introduction of evidence that negates the existence of the presumed fact. According to the Federal Rule, when evidence is put forth negating the fact that the presumption tends to support, the presumption still continues and is evidence to be weighed and considered with all of the other evidence in the case.

Federal Rule of Evidence 301 provides in part:

[A] presumption imposes on the party against whom it is directed the burden of going forward with evidence to rebut or meet the presumption, but does not shift to such party the burden of proof in the sense of the risk of nonpersuasion, which remains throughout the trial upon the party on whom it was originally cast.

A brief review of the history of this rule will aid in evaluating the Bankruptcy Court's reasoning. Before adoption of the Federal Rules of Evidence there were two major theories concerning the effect of a presumption once rebuttal evidence is admitted. Under the Thayer or "bursting bubble" theory a presumption vanishes entirely once rebutted, and the question must be decided as any ordinary question of fact. ⁸ Under a later theory, proposed by Morgan, a presumption shifts the burden of proving the nonexistence of the...