In re Roman Catholic Diocese of Syracuse

638 B.R. 33

IN RE: The ROMAN CATHOLIC DIOCESE OF SYRACUSE, NEW YORK, Debtor.

Case No. 20-30663

United States Bankruptcy Court, N.D. New York.

Signed February 22, 2022

Charles J. Sullivan, Sara C. Temes, Grayson T. Walter, Stephen A. Donato, Jeffrey David Eaton, Bond, Schoeneck & King, PLLC, Helmer, Syracuse, NY, for Debtor.

Edwin H. Caldie, Robert T. Kugler, Andrew Glasnovich, Stinson LLP, Minneapolis, MN, Alisa C. Lacey, Stinson LLP, Phoenix, AZ, Merritt S. Locke, Saunders Kahler, L.L.P., Utica, NY, for Creditor Committee.

Erin Champion, Office of the United States Trustee, Utica, NY, for U.S. Trustee.

Robert T. Kugler, Stinson Leonard Street, Minneapolis, MN, for Special Counsel Burns Bowen Bair LLP.

James R. Murray, Washington DC, for Special Counsel Blank Rome LLP.

MEMORANDUM-DECISION AND ORDER GRANTING MOTION TO DEEM LATE CLAIM AS TIMELY FILED

Wendy A. Kinsella, United States Bankruptcy Judge

L.M. ("Movant"), a sexual abuse survivor and unsecured creditor in this case, filed a Motion to Deem Late Claim to be Timely Filed (the "Motion") and Supplemental Motion to Deem Claim Timely Filed (the "Supplement"), seeking an order of the court pursuant to Rule 9006(b)(1)¹ to permit his/her late proof of claim to be designated as timely.² The Roman Catholic Diocese of Syracuse, New York ("Debtor") objected to the relief requested on the grounds that Movant failed to demonstrate excusable neglect. For the reasons set forth below, the Motion is granted.

JURISDICTION AND VENUE

The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue of the Motion is proper pursuant to 28 U.S.C. §§ 1408 and 1409.

BACKGROUND

On September 21, 2020, Debtor filed Motion For Entry of an Order Establishing a Deadline for Filing Proofs of Claim and Approving the Form and Manner of Notice Thereof that sought to set a deadline of March 1, 2021, for creditors to file proofs of claim in this case (the "Bar Date Motion")(Doc. 118). The Official Committee of Unsecured Creditors (the "Committee") opposed the Bar Date Motion, instead seeking to set August 14, 2021, as the date to be coterminous with New York's Child Victims’ Act deadline (the "CVA Deadline") for commencing a lawsuit for previously time barred childhood sexual abuse claims (Doc. 150). On November 6, 2020, this court entered Bar Date Order Establishing April 15, 2021, as the Deadline for Filing Proofs of Claim and Approving the Form and Manner of Notice Thereof (the "Bar Date Order")(Doc. 214). The court coupled the earlier April 15, 2021 deadline ("Bar Date") with a robust notice protocol intended to address due process concerns and allow creditors to timely file their claims. The objective was to set Debtor's case on an expedited track (Bar Date Order, p. 12).

Thereafter, the Committee filed Motion to Extend Time Deadline for the Filing of Claims (the "Extension Motion")(Doc. 363) renewing its request to extend the Bar Date to coincide with the CVA Deadline. The court denied the Extension Motion but noted "[t]here will be ways to remedy and address anyone who surfaces later and whether mentally they're incompetent because of something or they have excusable neglect." (Transcript regarding Hearing Held 3/25/2021, Doc. 446, p. 38).

Since that time, with Debtor and the Committee support, the court has entered three orders permitting survivor claimants to have their claims deemed timely, even though they were filed after the Bar Date. (See Doc. Nos. 823, 824 and 831). Those other claimants differ from Movant in one important way; their proofs of claim were filed after the Bar Date but before the expiration of the CVA Deadline, while Movant's proof of claim was filed on August 27, 2021, two weeks after the CVA Deadline lapsed. Significantly, Movant commenced an action against Debtor in New York State Supreme Court one day prior to the expiration of the CVA Deadline.³ With this background in mind, the court must determine whether the circumstances surrounding Movant's belated claim establishes ‘excusable neglect’ so that such claim should be deemed timely filed.

DISCUSSION

I. Bar Dates are Critically Important to the Reorganization Process

Rule 3003(c) provides that a court shall fix a date by which proofs of claim must be filed in a Chapter 11 case, commonly referred to as a bar date. The United States Court of Appeals for the Second Circuit (the "Second Circuit") has recognized that such deadlines have an "essential function" in bankruptcy proceedings. See In re Enron Corp., 419 F.3d 115, 127 (2d Cir. 2005). "A bar order does not function merely as a procedural gauntlet, but as an integral part of the reorganization process. If individual creditors were permitted to postpone indefinitely the effect of a bar order ... the institutional means of ensuring the sound administration of the bankruptcy estate would be undermined." In re Hooker Invs., Inc., 937 F.2d 833, 840 (2d Cir. 1991). Established time limits for claims "serve the important purpose of enabling the parties to a bankruptcy case to identify with reasonable promptness the identity of those making claims against the bankruptcy estate and the general amount of the claims, a necessary step in achieving the goal of successful reorganization." Id. As such, it is "akin to a statute of limitations, and must be strictly observed." In re Keene Corp., 188 B.R. 903, 907 (Bankr. S.D.N. Y 1995).

II. The Pioneer Excusable Neglect Analysis

Although bar dates play a critical role in bankruptcy proceedings, there may be limited circumstances in which a court will permit a party to file a late proof of claim and have it deemed timely. Rule 3003(c)(3) permits a court "for cause shown" to extend the time within which proofs of claim or interest may be filed. The "cause" standard of Rule 3003 incorporates the excusable neglect standard of Rule 9006, the general rule governing the computation, enlargement, and reduction of periods of time prescribed in other bankruptcy rules. See Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993).

Rule 9006(b)(1) provides:

when an act is required or allowed to be done at or within a specified period ... by order of the 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.

(emphasis added).

The United States Supreme Court's precedential holding in Pioneer governs the excusable neglect analysis. "Because Congress has provided no other guideposts for determining what sorts of neglect will be considered ‘excusable’, we conclude that the determination is at bottom an equitable one, taking account of all relevant circumstances surrounding the party's omission." Pioneer , 507 U.S. at 380, 113 S.Ct. 1489. The circumstances considered in Pioneer included four factors that courts now routinely utilize when reviewing excusable neglect: (1) the danger of prejudice to the debtor, (2) the length of the delay and its potential impact on judicial proceedings, (3) the reason for the delay, including whether it was within the reasonable control of the movant, and (4) whether the movant acted in good faith (collectively, the " Pioneer Factors"). Id. at 395, 113 S.Ct. 1489. The burden to show that the Pioneer Factors have been met falls on the claimant. See In re XO Commc'ns, Inc., 301 B.R. 782, 795 (Bankr. S.D.N.Y. 2003).

In the Second Circuit, the reason for the delay is weighted more heavily than the other factors. See In re Global Aviation Holdings , 495 B.R. 60, 65 (Bankr. E.D.N.Y. 2013) (citing Williams v. KFC Nat'l Mgmt. Co., 391 F.3d 411, 415-416 (2d Cir. 2004) ). " ‘[T]he four Pioneer factors do not carry equal weight; the excuse given for the late filing must have the greatest import. While prejudice, length of delay, and good faith might have more relevance in a close[ ] case, the reason-for-delay factor will always be critical to the inquiry.’ " In re Enron Corp., 419 F.3d 115, 123 (2d Cir. 2005), citing Silivanch v. Celebrity Cruises Inc., 333 F.3d 355, 367 n.7 (2d Cir. 2003). This approach recognizes the first, second, and fourth factors usually favor the party seeking the extension. See In re Lyondell Chem. Co., 543 B.R. 400, 409 (Bankr. S.D.N.Y. 2016). Consequently, the justification for the tardy claim is the principal consideration in the analysis.

A. Danger of Prejudice to Debtor

The first element in the Pioneer inquiry considers the danger of prejudice to Debtor. Movant asserts Debtor will "in no way be prejudiced" by the belated filing of Movant's claim, as Debtor knew about it a mere fourteen days after the expiration of the CVA Deadline. (See Supplement at ¶ 3). The Committee supports that position, indicating there is "no risk of hindering the progress of the case" and granting the Motion is "almost certain to have no impact on the Debtor's outcome in the case." (See Committee Response at ¶ 4). In opposition, Debtor states the prejudice imposed upon it and the administration of its case is significant, highlighting the potential danger of opening the "floodgates to similarly situated claimants" such that achieving finality in this case would not be possible. (See Diocese Second Supplement at ¶ 8; see also Hearing Held PDF with attached audio on 01/20/2022 at Doc. 826). Debtor argues this risk warrants denial of the Motion.

When considering the prejudice factor, courts share Debtor's concerns about opening the floodgates to potential claimants. See In re Dana Corp. , 2007 WL 1577763 at *6 (Bankr. S.D.N.Y. May 30, 2007) ; see also In re Enron , 419 F.3d at 132. This concern is pronounced in a very large bankruptcy case such as this one and is further magnified by the scope of abuse and number of survivors in this case. See In re AMR Corp. , 492 B.R. 660, 667 (Bankr. S.D.N.Y. 2013), As a result, there is a possibility...