In re Omega Optical, Inc.

476 B.R. 157

56 Bankr.Ct.Dec. 229

In re OMEGA OPTICAL, INC., Debtor.

No. 11–13036.

United States Bankruptcy Court, E.D. Pennsylvania.

July 27, 2012.

Dimitri L. Karapelou, Philadelphia, PA, for Debtor.

MEMORANDUM

BRUCE FOX, Bankruptcy Judge.

Presently before me is the chapter 11 debtor's motion for the entry of a final decree, pursuant to Federal Rule of Bankruptcy Procedure 3022, as well as a motion filed by Sovereign Bank to amend its proof of claim, which motion is opposed by the debtor.

After consideration of the arguments of counsel,¹ I conclude for the following reasons that Sovereign Bank's motion must be denied and the debtor's motion denied without prejudice.

I.

The following relevant facts are derived from court records.²

The debtor filed a voluntary petition in bankruptcy under chapter 11 on April 14, 2011. On April 17, 2011, notice of the debtor's bankruptcy filing was sent to known creditors, including Sovereign Bank. See docket entry # 13. On April 27, 2011, the debtor filed its bankruptcy schedules. On Schedule D the debtor listed Sovereign Bank as a secured creditor with a disputed claim, and valued the collateral for the disputed claim at $10,000.

By order dated May 9, 2011, a bar date of July 18, 2011 was set as the deadline for creditors to file proofs of claim pursuant to Federal Rule of Bankruptcy Procedure 3003(c)(3). On May 9, 2011, counsel for the chapter 11 debtor certified that a true and correct copy of the Order Setting the Proof of Claim Deadline was served by first class mail, postage prepaid and/or by electronic filing through the court's electronic case filing system upon all of its creditors, including Sovereign Bank. See docket entry # 34.

On December 16, 2011, Sovereign Bank filed a proof of claim in the amount of $80,662.46, docketed on the claims register as proof of claim number 19. This amount was asserted as a general, unsecured claim. Id.³ The proof of claim requested that all notices be sent to Sovereign Bank “c/o Robert L. Saldutti, Esq.” Moreover, also on December 16, 2011, Mr. Saldutti entered his appearance in this case on behalf of Sovereign Bank. See docket entry # 78.

On January 31, 2012, the debtor filed a proposed chapter 11 plan and disclosure statement. See docket entries 86–87. Debtor's counsel certified on February 6, 2012 that a copy of the proposed plan and disclosure statement were sent by first class mail, postage prepaid, inter alia, to Mr. Saldutti. See docket entry # 90.

Article III, paragraph 3.2 of the debtor's chapter 11 plan proposed on January 31st stated in full as follows:

Sovereign Bank is the holder of a disputed secured claim allegedly secured by “all assets” of the Debtor. The secured claim relates to a pre-petition business loan that totals $92,229.67. Sovereign Bank attempted to perfect its lien by recording a financing statement under the Uniform Commercial Code with the Department of State of Pennsylvania. The financing statement identifies the collateral subject to the lien of the financing statement as “all assets.” This description of collateral is considered super-generic and not sufficient to effectively perfect a lien on any collateral. In addition, the description of the collateral is limited to the collateral that existing [sic] at the time the lien was filed, and does not extend to any collateral acquired after the lien was filed. Therefore, Sovereign Bank's lien is not properly perfected. Indeed, Sovereign Bank has filed a proof [of] claim in this Bankruptcy treating the entire debt as unsecured. This secured claim of Sovereign Bank is being re-classified as an unsecured claim to be paid as a Class 3 [unsecured] creditor under this Plan. Sovereign Bank shall terminate the UCC–1 Financing Statement and release all other existing liens against the Debtor's asset[s] upon the Effective Date of this Plan.

Docket entry # 86 (“Chapter 11 Small Business Plan Filed by Omega Optical, Inc.” dated January 31, 2012, ¶ 3.2) (emphasis added).

On March 7, 2012, the debtor filed an amended chapter 11 plan. This proposed amended plan, which provided that the debtor would continue in operation after confirmation and make plan distributions from net operating income, see paragraph 3.3, contained the identical language in paragraph 3.2 regarding the treatment of Sovereign Bank's claim as did the original proposed plan. See docket entry # 97 (“Amended Chapter 11 Small Business Plan Filed by Omega Optical, Inc.” dated March 7, 2012). In addition to providing a modest dividend to class 3 unsecured creditors, including Sovereign Bank, this amended plan contained the following two provisions:

Possession of Assets. The Reorganized Debtor shall continue in possession of all its property and assets after the Effective Date.

* * *

The payments, distributions and other treatments provided in respect of each Allowed Claim and Allowed Interest in the Plan shall be in full settlement and complete satisfaction [sic] discharge and release of such Allowed Claim and Allowed Interest.

Id., ¶¶ 5.2, 6.1.

On March 7, 2012, debtor's counsel certified that a copy of this proposed amended plan was sent by first class mail, postage prepaid, to (among others) Mr. Saldutti. See docket entry # 99. By order dated March 12, 2012, a hearing was scheduled for April 30, 2012 to consider confirmation of the debtor's proposed amended plan. See docket entry # 101. Debtor's counsel certified that Sovereign Bank (along with all other creditors), as well as Mr. Saldutti separately, were served with a copy of the March 12th order. See docket entry # 102.

A confirmation hearing was held on April 30, 2012. The only objection to confirmation was filed by the Commonwealth of Pennsylvania. See docket entry # 109. By order dated April 30, 2012, the debtor's amended plan was confirmed pursuant to 11 U.S.C. § 1129(b). See docket entry # 111. A copy of the confirmation order was sent electronically by the court to Mr. Saldutti on May 2, 2012, see docket entry # 113, and a hard-copy was mailed to Mr. Saldutti and to Sovereign Bank by debtor's counsel on May 8, 2012. See docket entry # 114. The order of confirmation made no mention of any lien held by Sovereign Bank; nor did the order address the vesting of property of the estate. No appeal was taken from the April 30th confirmation order. The plan effective date was ten days after the confirmation order became final (May 24, 2012). See “Amended Chapter 11 Small Business Plan Filed by Omega Optical, Inc.,” dated March 7, 2012, ¶ 1.29.

On June 12, 2012, the debtor filed its instant motion for a final decree, alleging that its confirmed plan would be substantially consummated by June 30, 2012, and seeking to have its case closed under 11 U.S.C. § 350(a). At the hearing held on July 11, 2012, counsel for the United States trustee stated in open court that his office had no opposition to the entry of a final decree, based upon a review of the debtor's distribution reports.

On June 13, 2012, Sovereign Bank filed its instant motion to amend its proof of claim, asserting that its December 16, 2011 unsecured proof of claim was “an obvious oversight” and that it actually holds a lien on all of the debtor's assets. Sovereign Bank further asserts that, if permitted to amend its proof of claim, it will seek relief under Federal Rule of Bankruptcy Procedure 3012 to value its collateral so as to determine the extent of its allowed secured claim pursuant to 11 U.S.C. § 506(a). See generally In re Heritage Highgate, Inc., 679 F.3d 132 (3d Cir.2012).

In support of its motion to amend, Sovereign Bank alleges that the debtor would not be prejudiced by such a proposed amendment, because the debtor originally scheduled its claim as secured (albeit disputed). Motion, at 2.

II.

I turn first to the motion filed by Sovereign Bank, as the pendency of this motion would render it inappropriate to enter a final decree.

A.

In seeking to amend its proof of claim, Sovereign Bank does not seek to alter the amount of its claim, only its classification from unsecured to secured, with the amount of its secured claim limited by the value of its collateral under section 506(a). In opposing this motion, the debtor argues that such an amendment would “undo the [confirmed] plan that is binding upon Sovereign and all creditors.” Debtor's Objection, ¶ 7.

In general, “[t]he decision to allow amendments to a proof of claim is within the discretion of the Bankruptcy Court.” In re Ben Franklin Hotel Associates, 186 F.3d 301, 309 (3d Cir.1999). In In re Trans World Airlines, Inc., 145 F.3d 124, 141 (3d Cir.1998), the Third Circuit referenced Federal Rule of Bankruptcy Procedure 7015, which incorporates Federal Rule of Civil Procedure 15, as the basis for deciding whether such an amendment should be permitted. See, e.g., In re Quinn, 423 B.R. 454, 463 (Bankr.D.Del.2009); In re Washington, 420 B.R. 643, 645 (Bankr.W.D.Pa.2009).⁴

The general application of Rule 15 has been explained by the Supreme Court as follows:

Rule 15(a) declares that leave to amend “shall be freely given when justice so requires”; this mandate is to be heeded.... If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits. In the absence of any apparent or declared reason—such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.—the leave sought should, as the rules require, be “freely given.”

Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) (citation omitted) (emphasis added).

Thus, it has long been understood that leave to amend pleadings should be denied if the amendment itself would be futile, i.e., unable to afford the movant any relief. See, e.g., Green v. Department of...