Opinion
Case No. 02 B 2474
March 21, 2003
MEMORANDUM OPINION
This matter is before the court on the motion of Jackie Brower ("Brower"), a personal injury claimant, for an order excusing the late filing of her proof of claim. Brower failed to file a proof of claim by the July 31, 2002 bar date fixed by court order dated March 26, 2002. She contends, however, that she did not receive proper notice of the bar date. She further contends that the failure to timely file was the result of excusable neglect.
Her motion is actually entitled "Motion for Leave to File Appearance Instanter and Motion of Jackie Brower for an Order Excusing Late Filing of Proof of Claim."
BACKGROUND
Brower alleges that she was injured at a Kmart store in Lockport, Illinois in October, 1998. In September, 1999, she filed an action in the Circuit Court of Will County, Illinois, in which she was represented by Mark J. Tivin of the firm Horwitz, Horwitz Associates. Thereafter, on or about June 26, 2001, she and Kmart agreed to settle the action for the sum of $12,000. She executed a Release Agreement on or about September 27, 2001, and on December 26, 2001, her counsel, Mr. Tivin, signed a Stipulation to Dismiss the state court action, which was also signed by Kmart's counsel. Kmart issued a check on January 7, 2002, payable to Jackie Brower and her personal injury lawyers, as well as Drs. Timothy Radcliffe and Ramesh Wadkwani. The check was presented on or about January 28, 2002, after the necessary endorsements were obtained. However, in the interim, Kmart Corporation and thirty-seven of its subsidiaries and affiliates had filed voluntary Chapter 11 petitions in this court. Payment on the check was therefore stopped, and Kmart's third party administrator, Sedgwick Claims Management Services, sent a letter to Mr. Tivin dated February 1, 2002 advising him that Kmart had filed a bankruptcy petition and that the check would not be honored.
Brower alleges that during this same time period, "in late-January/early February 2002," Mr. Tivin left the Horwitz firm. Thereafter, in March, Michael Wierzbicki joined the firm and took over many of Tivin's files, including the Brower file. Although Wierzbicki took over the Brower file, he stated at the hearing on this matter that he did not "become knowledgeable and learn about the Jackie Brower case until September of 2002," when he was advised that the settlement check would not be paid and that the claim was barred. One of the firm's paralegals had contacted Sedgwick on September 17, 2002 regarding the status of the settlement funds and received a return call the next day advising that a notice of the claims bar date had been mailed to the Horwitz firm on April 1, 2002 and that the claim was barred for failure to file a proof thereof by July 31, 2002.
Brower asserts that no notice of the July 31, 2002 bar date was ever received by the Horwitz firm. She alleges that the firm did receive in June, 2002 the Debtor's notice of an amended motion seeking approval of its proposed personal injury claims resolution procedures (the "PI Procedures"). She farther states, however, that no proof of claim was enclosed and that neither Brower nor her counsel ever received any instructions regarding the filing of a proof of claim or any deadline with respect thereto.
Debtor, on the other hand, asserts that Trumbull Services, LLC, the court-approved noticing agent in this case, did in fact mail the bar date notice to the Horwitz firm on April 1, 2002, and submits the affidavit of Shannon L. Maloney, a Trumbull employee, to that effect. In her affidavit, Ms. Maloney further avers that on June 15, 2002, Trumbull sent the Horwitz firm the amended motion concerning PI Procedures and that neither the motion nor the bar date notice was returned as "undeliverable."
Finally, Brower contends that even assuming the Horwitz firm received the bar date notice, such notice was inadequate, as it should have been mailed directly to her, and not to her counsel.
DISCUSSION
A fundamental requirement of due process is "notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Mullane v. Central Hanover Bank Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950) (citations omitted). Accordingly, unless a creditor is given reasonable notice of the bankruptcy case and the relevant bar dates, his claim cannot be constitutionally discharged. In re O'Shaughnessy, 252 B.R. 722, 729 (Bankr. N.D. Ill. 2000) (citations omitted); see also Chemetron Corp. v. Jones, 72 F.3d 341, 346 (3rd Cir. 1995), cert. denied, 517 U.S. 1137, 116 S.Ct. 1424, 134 L.Ed.2d 548 (1996).
The court reviews the totality of circumstances to determine whether reasonable notice was given. O'Shaugnessy, 252 B.R., at 730. The court should consider, among other things, whether any inadequacies in the notice prejudiced the creditor and whether notice is given in enough time to afford a creditor sufficient opportunity to respond to "the impending deprivation of its rights." O'Shaugnessy, 252 B.R., at 730 ( citing In re Walker, 149 B.R. 511, 514 (Bankr. N.D. Ill. 1992)). Another circumstance to consider is whether a creditor who did not receive formal notice, nevertheless had actual knowledge of the bankruptcy case. O'Shaugnessy, 252 13.R., at 730 "A party with actual notice of a bankruptcy case must act diligently to protect its interest, despite the lack of formal notice." O'Shaugnessy, 252 B.R., at 730 (citing In re Marino, 195 B.R. 886, 893 (Bankr.N.D.Ill. 1996)). In certain circumstances, due process may be satisfied if a creditor has informal actual knowledge of the bankruptcy case in sufficient time to take appropriate action. O'Shaugnessy, 252 B.R., at 730, 732.
A. Notice Received by Brower's Counsel
As indicated above, Brower contends that the Horwitz firm did not receive the notice of bar date sent by Trumbull Services. However, Rule 9006(e) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") provides that "[s]ervice of . . . notice by mail is complete on mailing." The Supreme Court has "repeatedly recognized that mail service is an inexpensive and efficient mechanism that is reasonably calculated to provide actual notice." Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478, 490, 108 S.Ct. 1340, 99 L.Ed.2d 565 (1988). Mail properly addressed, stamped, and deposited in the mail system is presumed to have been received by the party to whom it has been addressed. See, e.g., In re Bucknum, 951 F.2d 204, 207 (9th Cir, 1991); Hagner v. U.S., 285 U.S. 427, 430, 52 S.Ct. 417, 76 L.Ed. 861 (1932) ("The rule is well settled that proof that a letter properly directed was placed in a post office creates a presumption that it reached its destination in usual time and was actually received by the person to whom it was addressed"); Boomer v. ATT Corp., 309 F.3d 404, 415 n. 5 (7th Cir. 2002).
Here, Kmart submitted the affidavit of Shannon Maloney, in which she avers that the bar date notice was mailed by first class mail, postage prepaid, to Brower in care of her counsel, Horwitz, Horwitz Associates, 25 East Washington, Chicago, IL 60602. Accordingly, Kmart is entitled to the benefit of the presumption that the firm received the notice. It was Brower's responsibility to rebut the presumption of receipt. See In re Pettibone Corp., 123 B.R. 304, 310 (Bankr. N.D.Ill. 1990). Brower has offered nothing other than her allegations in the motion and her counsel's statements in court. While a denial may create a question of fact, it does not rebut the presumption. In re Longardner Assoc., Inc., 855 F.2d 455, 459 (7th Cir. 1988), cert. denied, 489 U.S. 1015, 109 S.Ct. 1130, 103 L.Ed.2d 191 (1989); Pettibone, 123 B.R., at 310; see also In re Ms. Interpret, 222 B.R. 409, 413 (Bankr. S.D.N.Y. 1998) ("a party must do more than merely assert that it did not receive the mailing; its testimony or affidavit of non-receipt is insufficient, standing alone, to rebut the presumption"). Kmart, on the other hand, through the affidavit of Shannon Maloney, established that the bar date notice sent to the Horwitz firm was not returned as "undeliverable." Accordingly, the Court finds that Brower's counsel actually received the bar date notice. See, e.g., Longardner, 855 F.2d, at 459-60; Pettibone, 123 B.R., at 310.
Here, however, there is arguably not even a question of fact, as Brower failed to submit an affidavit denying receipt.
The Court further notes that the Horwitz firm also received not only Sedgwick's February 1, 2002 letter advising of Kmart's bankruptcy petition, but also the amended motion for approval of PI Procedures mailed on June 15, 2002, which itself contained a reference to the bar date. In addition, the proposed Procedures attached to the motion defined "Bar Date" as "4:00 p.m. July 31, 2002, the last date by which Proofs of Claim evidencing Personal Injury Claims may be timely filed." The Procedures further defined "Eligible Claimant" (i.e., a claimant eligible to participate in the Claims Resolution Procedures) as "a Claimant who has timely filed a Proof of Claim evidencing a Personal Injury Claim." The Horwitz firm was thus put on notice of the bankruptcy case as early as February, 2002 and was specifically put on notice of the bar date on two separate occasions prior to July 31, 2002.
B. Notice to Counsel as Notice to Claimant
As noted above, Brower contends that the bar date notice should have been sent directly to her, and not to her personal injury counsel. Under Bankruptcy Rule 2002(a), "all creditors" must be given at least 20 days' notice by mail of the deadline for filing proofs of claim in a Chapter 11 case. F.R.Bankr.P. 2002(a)(7). The question, then, is whether notice of the bar date to Brower's personal injury counsel can be imputed to Brower even though her counsel did not file an appearance in this bankruptcy case.
In In re Price, 871 F.2d 97 (9th Cir, 1989), a creditor had filed an action in state court relating to a contract dispute, which also alleged fraud. The debtor thereafter filed a Chapter 7 petition and failed to list the creditor on his schedules. Accordingly, the creditor did not receive notice of the bankruptcy case or the deadline for filing dischargeability complaints under § 523 of the Bankruptcy Code. However, approximately two months prior to the deadline, the creditor's non-bankruptcy counsel in the state court action received a Notice of Injunction from the debtor's counsel, which stated that the bankruptcy petition had been filed and that the state court suit was subject to the automatic stay. Id. at 97-98. The notice did not contain any deadlines, and the creditor's counsel "assumed that further notices would be forthcoming from the bankruptcy court." Id. at 98. He therefore took no action, and the deadline passed. The creditor thereafter sought leave to file an untimely dischargeability complaint. The bankruptcy court allowed the motion, finding that the creditor had neither notice nor actual knowledge of the dischargeability complaint deadline. The Ninth Circuit, however, affirmed the district court's reversal of that decision, explaining that counsel was given actual notice of the bankruptcy filing at a time when he was pursuing in state court the same claim that was sought to be held nondischargeable. The Court held that "under these circumstances notice to counsel constituted notice to the appellant," and the creditor's due process argument was therefore without merit. Id. at 99 (citations omitted). See also In re Marino, 195 B.R. 886, 895 (Bankr. N.D.Ill. 1996).
A similar conclusion was reached in In re Linzer, 264 B.R. 243 (Bankr. E.D.N.Y. 2001), where the court ruled that notice to the creditor's non-bankruptcy securities litigation counsel would be imputed to the creditor. Although the court ultimately held that the amount of notice was insufficient (nine days), it explained the rationale for the rule imputing notice as follows:
The general rule in agency law is that adequate notice to or actual knowledge acquired by an agent is imputed to the principal. This rule also applies to the relation of attorney and client. . . . Notice or knowledge is imputed when the agent is acting within the scope of his authority and the knowledge pertains to matters within the scope of the agent's authority . . . . This general rule for imputing an agent's notice or knowledge applies to bankruptcy cases. . . . Knowledge by an agent of a creditor of the pendency of a bankruptcy case will be imputed to the creditor if his agent was employed to collect the debt or was in charge of its collection. . . .
. . .
. . . [T]he Court is compelled to hold that the creditor's non-bankruptcy counsel is deemed to be an authorized agent for receiving notice of the debtor's pending bankruptcy case. The implicit assumption is that when a non-bankruptcy counsel is actively engaged in prosecuting a creditor's claim against the debtor before a non-bankruptcy tribunal . . ., that is a sufficient nexus to the bankruptcy case to justify imputing authorized agency.
Id. at 248-49 (citations omitted).
In accordance with the reasoning of these decisions, the court concludes that notice of the bar date to the Horwitz firm constituted notice to Brower in this case.
C. Excusable Neglect
The court now turns to Brower's contention that the failure to timely file was the result of excusable neglect. As the Supreme Court stated in Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L, Ed.2d 74 (1993), the determination of whether neglect is "excusable"
is at bottom an equitable one, taking account of all relevant circumstances surrounding the party's omission. These include . . . the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.
Id. at 395. Pioneer also teaches that although "excusable neglect" is a somewhat "elastic concept," "inadvertence, ignorance of the rules, or mistakes construing the rules do not usually constitute `excusable' neglect." Pioneer, 507 U.S., at 392.
Here, Brower contends that the neglect is excusable for a number of reasons. First, she urges that Tivin's exit from the Horwitz firm came at an inopportune time and contributed to the failure to timely file her claim. Tivin did leave the firm "in late-January/early February 2002," at about the time that Sedgwick's letter would have arrived, advising of the bankruptcy case and the inability to honor the settlement check. Wierzbicki took over the file upon his arrival in March, but he did not become knowledgeable about its contents until September of 2002. At the hearing on this matter, Wierzbicki attempted to explain this lack of familiarity by stating that "there would be no reason for [him] to know about this case, since it had been settled. It was not an active litigation file." (Transcript, page 67) The court inquired of Wierzbicki as to who at the firm was responsible for following up on the settlement, and he replied that traditionally that was handled by a paralegal at the firm. (Transcript, page 67) Indeed, according to Brower's allegations in her motion and Wierzbicki statements on the record, it was the contact made by a paralegal at his office on September 17, 2002 that led to the "discovery" of the July 31 bar date.
However, long before September of 2002, the Horwitz firm had received not only the bar date notice mailed on April 1, 2002, but also the PI Procedures motion, which itself made reference to the July 31 bar date. Whether or not these materials, which were received by the Horwitz firm, ever came to Wierzbicki's attention, he is charged with knowledge of their contents. Moreover, it should be noted that Wierzbicki joined the firm in March, 2002, prior to the mailing of the bar date notice and well before the firm received the PI Procedures motion in June. Under these circumstances, Tivin's departure from the firm should have had little or no impact on the timely filing of Brower's claim.
It is also worth noting that in Pioneer, one of the contentions in support of the claimant's excusable neglect argument was that the bar date came at a time when claimant's counsel was experiencing a "major disruption" in his professional life. 507 U.S., at 384. He had recently withdrawn from his former law firm and had no access to the case file. Id. However, the Supreme Court stated that "[i]n assessing the culpability of [claimant's] counsel," the Court gave "little weight to the fact that counsel was experiencing upheaval in his law practice at the time of the bar date." Id. at 398. Rather, the Court's decision was driven largely by a "`dramatic ambiguity' in the notification" itself. Id. at 1500.
Finally, it is significant that Brower's motion for an order excusing the late tiling of her proof of claim was not filed with the court until December 4, 2002, — i.e., not only four months after the bar date and ten months after the firm gained actual knowledge of the bankruptcy case, but also more than 75 days after counsel admittedly "discovered" that the claim was barred. There is no explanation offered for this delay other than the allegation that Wierzbicki made telephone calls to both Kmart's bankruptcy counsel and Trumbull Services in late September, left messages inquiring about the status of the case and the relevant procedures, and never received any return calls. The court's docket, however, is readily accessible to the public, both at the courthouse and electronically. Moreover, the onus is not upon the debtor to inform claimant's counsel of the rules or of the procedures for obtaining necessary information in a bankruptcy case, — particularly in a case of this size, which could generate tens of thousands of calls to debtor's counsel.
The lengthy delay in this case was clearly within counsel's reasonable control and resulted largely from lack of familiarity with the Bankruptcy Rules or mistakes construing them. While the court does not doubt that claimant and her counsel have otherwise acted in good faith, under all the circumstances of this case the neglect was not excusable.
CONCLUSION
For the reasons set forth above, the court denies Brower's motion for an order excusing the late filing of her claim. This opinion constitutes the court's findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052. A separate order shall be entered pursuant to Bankruptcy Rule 9021.
ORDER
For the reasons stated in its memorandum opinion entered on this date, the court denies the Motion of Jackie Brower for an Order Excusing Late Filing of Proof of Claim. The request of her counsel for leave to file appearance is granted.