Slobodian v. Capital for Merchants, LLC (In re ABS Ventures, Inc.)

523 B.R. 443

In re ABS VENTURES, INC., Debtor.

Markian R. Slobodian, Trustee, Objectant

v.Capital for Merchants, LLC, Respondent.

No. 1:12–BK–05520MDF.

United States Bankruptcy Court, M.D. Pennsylvania.

Signed Dec. 8, 2014.

Steven M. Carr, Ream Carr Markey & Woloshin LLP, York, PA, for Debtor.

OPINION

MARY D. FRANCE, Bankruptcy Judge.

Before the Court is the Motion filed by Capital for Merchants, LLC (“Capital”) for reconsideration of the order entered October 16, 2014, sustaining the objection of Markian R. Slobodian, Chapter 7 trustee for the estate of ABS Ventures, Inc. (the “Trustee”), to Capital's amended proof of claim. For the reasons that follow, the Motion for reconsideration will be granted, subject to further order of the Court.¹

I. Factual and Procedural Background

A petition under Chapter 7 of the Bankruptcy Code was filed on behalf of ABS Ventures, Inc. on September 19, 2012. Shortly thereafter, the Clerk of the Bankruptcy Court notified creditors not to file proofs of claim at that time. On March 28, 2013, the Clerk notified creditors that assets had been recovered by the Trustee and that creditors who wished to share in any distribution of funds were required to file a proof of claim on or before June 28, 2013. Capital filed a proof of claim for $45,433.25 on the bar date that described the claim as fully secured by real estate and various items of personal property. Earlier the same month, the Trustee and Lawrence G. Frank (“Frank”), Chapter 7 trustee in the case of Stacey L. Heaps (“Heaps”), filed a joint motion for the sale of Debtor's real estate and of Heaps' personal property (the “Sale Motion”).² Capital, as a secured creditor of both debtors, objected to the sale, asserting that the sale price was inadequate and would not pay Capital in full. The sale was approved on July 29, 2013 after a hearing on Capital's objection. The same day an amended order was entered, which included a statement that “Merchants for Capital, LLC [sic] may share in the unsecured creditor distribution” (the “Amended Sale Order”).

On September 30, 2013, the Trustee and Frank filed a joint motion requesting the Court to approve a settlement agreement with Capital resolving its objection to the sale. Under the terms of the agreement, Capital received $1400 carved out of the fees due to the real estate agency that procured the buyer. The parties also agreed that $6000 of the proceeds of the personal property sale in the Heaps case would be escrowed by Frank with $3000 to be held for unsecured creditors of the Heap estate and $3000 to be paid to the Pennsylvania Department of Labor and Industry (“L & I”) unless L & I waived its claim. In the latter event, Frank agreed to remit the funds to Capital in satisfaction of its second priority lien on the Heaps assets. L & I later waived its secured claim, and $3000 in proceeds were transferred to Capital. The settlement agreement was approved by the Court on October 24, 2013.

Approximately nine months later, the Trustee filed an objection to Capital's June 28, 2013 secured proof of claim. The Trustee asserted that the claim was no longer secured because the assets of the estate had been liquidated and senior liens had been paid. The Trustee also noted that Capital had received partial payment under the settlement agreement, but had failed to amend its claim to credit the funds received and to reclassify the claim as unsecured. The notice sent to Capital with the objection stated: “Attached to this notice is an objection to your proof of claim. Your claim may be reduced, modified, or eliminated. You should read this notice and the objection carefully and discuss them with your attorney, if you have one.” (emphasis in original). The notice further provided that within thirty days [August 16, 2014], Capital was required to file either an amended proof of claim, a response to the objection, or a request for a hearing. If none of the three were filed, Capital was informed that the Court could grant the relief requested or disallow or modify the claim without further notice or hearing. Although Capital received proper notice, it failed to respond to the objection, file an amended claim, or request a hearing within thirty days.

On August 20, 2014, the Court sustained the Trustee's objection, indicating in the order that the claim was not secured and was overstated. Although the objection was sustained, the Court provided Capital with an additional fourteen days to file an amended claim, but warned that failure to comply with the order would result in total disallowance of the unsecured claim. On September 8, 2014, five days after the Court-ordered bar date, Capital filed an amended unsecured claim of $41,033.25. The Trustee objected to the amended claim as untimely. Capital, again failed to respond to the notice of the objection. On October 16, 2014, the Trustee's objection to Capital's amended claim was sustained by the Court and disallowed in full.

On October 29, 2014, Capital filed a motion with the Court requesting the Court to reconsider and vacate the default order disallowing Capital's amended proof of claim. The Trustee filed an objection to the motion for reconsideration and argument was heard by the Court on November 18, 2014.

II. Discussion

While admitting that it failed to properly calendar and respond to the Trustee's objection to its original proof of claim, that it failed to file a timely amendment to its claim after the Court sustained the Trustee's objection and extended the deadline for an additional fourteen days, and that it failed to respond timely to the Trustee's objection to its amended proof of claim, Capital argues that its claim should be allowed. Capital admits that it was dilatory at several points, but argues that based on discussions surrounding the settlement agreement, the Trustee knew that Capital intended to assert an unsecured deficiency claim. Rather than filing an objection to the original proof of claim, Capital argues that the Trustee should have reclassified and reduced the claim. Capital also argues that while it failed to comply with the deadline set by the Court for amending the proof of claim, it did file an amended proof of claim a mere five days beyond the bar date set by the Court. Capital further argues that its failure to properly calendar deadlines, to comply with directives issued by the Court, and to become familiar with procedures set forth in the local rules is excusable.

The Trustee argues that Capital is attempting to circumvent a final order, which it failed to appeal. Once the Court entered the August 20, 2014 order giving Capital fourteen days to file an amended claim, the Trustee argues that Capital was required to follow one of three avenues on or before September 4, 2013: (1) comply with the order; (2) move for reconsideration; or (3) file an appeal. Capital took no action before September 4, 2013. This error was further compounded by Capital's failure to respond to the Trustee's objection to the late filed amended proof of claim. Therefore, the Trustee argues, the Court should not reconsider the order denying Capital's amended claim as it was untimely. Further, the Trustee argues that the excusable neglect standard articulated by the Supreme Court in Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993) does not apply in Chapter 7 cases and that there are no other equitable considerations that support setting aside the order disallowing Capital's unsecured claim.

a. Amending a timely filed proof of claim

If an unsecured creditor wishes to participate in distributions made from a Chapter 7 bankruptcy estate, the creditor must file a timely proof of claim. See Fed. R. Bankr.P. 3002(a). In a Chapter 7 case, a proof of claim must be filed not later than ninety days after the first date set for the meeting of creditors except in six specified circumstances. In one of these circumstances, if a Chapter 7 trustee gives notice that there are insufficient assets to pay a dividend, the time period in which a claim must be filed does not start to run. If the trustee later files a notification that payment of a dividend appears possible, creditors must be given notice that they have ninety days to file proofs of claim. Fed. R. Bankr.P. 3002(c)(5).

In the within case, the Clerk notified creditors on March 28, 2013 that it appeared that assets would be available for distribution to creditors and that they had ninety days to file proofs of claim. In response to this notice, Capital filed a timely secured claim in the amount of $45,433.25. After the assets of both estates were sold and Capital received a distribution in partial satisfaction of its claim, the balance of its claim became unsecured. The Trustee argues that at this point, it was incumbent upon Capital to file an amended proof of claim for the deficiency, which Capital failed to do.

As the Trustee has asserted, the excusable neglect standard for late filed original proofs of claim does not apply in Chapter 7 cases. Pioneer, 507 U.S. at 389, 113 S.Ct. 1489. The time for filing proofs of claim in Chapter 7 is governed strictly by Fed. R. Bankr.P. 3002(c) and not by Fed R. Bankr.P. 9006. Rule 9006(b)(1) authorizes a court to enlarge the time for performing certain acts or filing particular documents if the reasons for failing to meet a bar date may be characterized as excusable neglect. But once a timely claim has been filed, there is no absolute bar to filing an amended proof of claim if it is not a new claim disguised as an amended claim. Here, Capital filed a timely proof of claim. After its collateral was sold and it received partial payment of its claim, Capital's remaining claim was unsecured. The Trustee not only acknowledged Capital's right to file an amended claim, he sought to compel its filing. What Capital failed to do was file a amended proof of claim when a court order had been entered compelling its filing by a date...