Opinion
Case No. 3:03-0395
September 17, 2003
MEMORANDUM and ORDER
On this appeal from a decision of the United States Bankruptcy Court for the Middle District of Tennessee, Capitol Industries, Inc. ("Capitol") asserts that the Bankruptcy Court erred in granting summary judgment to debtor Regal Cinemas, Inc., et al., ("Regal"), The Bankruptcy Court found that Regal's objection to Capitol's proof of claim substantially complied with the requirements of LBR 9013-1(b)(3)(ii) and the confirmed plan and, further, that Capitol's claim had no merit. (Bankruptcy Docket No. 1892, Bankruptcy Court Memorandum Opinion) Capitol has filed its brief in support of its appeal contesting the Bankruptcy Court's holdings (Docket No. 6), to which Regal has responded (Docket No. 9), and Capitol has replied (Docket No. 10).
I. STATEMENT OF FACTS
On September 10, 1990, Capitol entered into a Lease Agreement ("Lease") with Laskin Road Associates, L.P. ("Landlord"), for a theater located in Virginia Beach, Virginia. On November 13, 1997, Capitol assigned its interest in the Lease to Regal pursuant to an Assignment and Assumption of Lease Agreement. That same day, Capitol and Regal also entered into an Acquisition Agreement, which incorporated the Assignment and Assumption Agreement.Regal closed the theater in January 2001, and the Landlord reentered on January 29. On October 11, 2001, Regal filed a voluntary petition for relief under Chapter 11 and rejected the Lease as of that date. The Landlord filed a proof of claim, pursuant to 11 U.S.C. § 502(b)(6), for termination damages of $822,177.89. This claim was allowed, and Regal paid the Landlord in full on May 17, 2002. Capitol filed a proof of claim for $5,882,785.49 on November 21, 2001. Regal filed an objection to Capitol's claim on February 26, 2002, two days before the February 28 deadline. However, Regal failed to include an affidavit or declaration under penalty of perjury specifying the basis for the objection, as required by LBR 9013-1(b)(3)(ii) and by the confirmed plan, which required compliance with the Local Bankruptcy Rules. After the deadline, on April 10, 2002, Regal filed a supplement to its objection with an affidavit of Amy E. Miles, Regal's Chief Financial Officer.
II. ANALYSIS A. STANDARD
This court, on a motion for summary judgment, applies the summary judgment standard set out in Federal Rule of Civil Procedure 56 in reviewing the Bankruptcy Court's conclusions of law. See In re Cannon, 277 F.3d 838, 849 (6th Cir. 2002). The bankruptcy court's findings of fact are reviewed for clear error. See In re Rembert, 141 F.3d 277, 280 (6th Cir. 1998). The bankruptcy court's equitable determinations "are within the sound discretion of the bankruptcy judge and will not be disturbed absent abuse of discretion." In re MJ. Waterman Associates, Inc., 227 F.3d 604, 607 (6th Cir. 2000).Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment should be rendered if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R. Civ, P. 56(c). To prevail, the moving party must prove the absence of any genuine issue of material fact as to the essential elements of the opposing party's claim. See Celotex v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 202 (1986); Street v. J.C. Bradford Co., 886 F.2d 1472, 1477 (6th Cir. 1989). To resolve the motion, the court must view the factual evidence in the light most favorable to the nonmoving party. Its evidence is to be believed and all reasonable inferences are to be drawn in its favor. See Matsushita Electric Indus, Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); McLean v. Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). "The court's function is not to weigh the evidence and determine the truth of the matters asserted, `but to determine whether there is a genuine issue for trial.'" Little Caesar Enters, Inc., 219 F.3d 547, 551 (6th Cir. 2000) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986)). If the nonmoving party, however, fails to demonstrate a genuine factual dispute on any essential element of the claim, the moving party is entitled to summary judgment as a matter of law. See Williams v. Ford Motor Co., 187 F.3d 533, 537-38 (6th Cir. 1999).
To preclude summary judgment, the nonmoving party "is required to present some significant probative evidence that makes it necessary to resolve the parties' differing versions of the dispute at trial." Gaines v. Runyon, 107 F.3d 1171, 1174-75 (6th Cir. 1997). The nonmoving party must show that "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson, 477 U.S. at 249, 106 S.Ct. at 2511. If the evidence offered by the nonmoving party is "merely colorable," or "is not significantly probative," or enough to lead a fair-minded jury to find for the nonmoving party, the motion for summary judgment should be granted. Anderson, 477 U.S. at 249-252, 106 S.Ct. at 2510-12. "A genuine dispute between the parties on an issue of material fact must exist to render summary judgment inappropriate." Hill v. White, 190 F.3d 427, 430 (6th Cir. 1999) (citations omitted).
B. SUBSTANTIAL COMPLIANCE OF REGAL'S OBJECTION
Under the Local Bankruptcy Rules ("LBR"), all objections to claims must include an affidavit or declaration under penalty of perjury. LBR 9013-1(b)(3)(ii). Regal's confirmed plan incorporated the Local Bankruptcy Rules. Regal did not include such proof with its objection and did not supplement the objection with proof until one and one-half months after the deadline, Therefore, unless, as the Bankruptcy Court found, Regal's filing substantially complied with the LBR, the objection would fail and Capitol's claim would be allowed as unopposed.
The Bankruptcy Court found that, despite the technical deficiency of Regal's objection, the equitable doctrine of substantial compliance operated to render Regal's objection timely filed, hi In re Eagle-Picker, the Sixth Circuit determined that the substantial compliance doctrine can render a pre-deadline, but technically deficient, filing timely. In re Eagle-Picker Industries, Inc., 285 F.3d 522, 525-29 (6th Cir. 2002). In that case the Sixth Circuit also "assume[d] without deciding" that the Ninth Circuit's four factor test, set out in Borzeka v. Heckler, was an appropriate tool for determining whether substantial compliance existed. The four elements under that test are:
(a) the party that had to be served personally received actual notice, (b) [that party] would suffer no prejudice from the defect in service, (c) there is justifiable excuse for the failure to serve properly, and (d) the [serving party] would be severely prejudiced if his [objection] were dismissed.In re Eagle-Picher, 285 F.3d at 529 (quoting Borzeka v. Heckler, 739 F.2d 444, 447 (9th Cir. 1984)).
Substantial compliance is an equitable doctrine. Id. Sit 529. Therefore, this court must determine whether the Bankruptcy Court abused its discretion in finding that Regal's substantial compliance with LBR 9013-1(b)(3)(ii) allowed its objection to Capitol's proof of claim to be sustained. See id. (citing In re MJ. Waterman Assocs., Inc., 227 F.3d 604, 607 (6th Cir. 2000)). The Sixth Circuit defines an abuse of discretion as "a `definite and firm conviction that the [court below] committed a clear error of judgment.'" MJ. Waterman, 227 F.3d at 607 (quoting Soberay Mach. Equip. Co. v. MRF Ltd., Inc., 181 F.3d 759, 770 (6th Cir. 1999)). "The question is not how the reviewing court would have ruled, but rather whether a reasonable person could agree with the bankruptcy court's decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion." Id.
In finding that Regal had substantially complied with the Local Rules (and the plan), the Bankruptcy Court explicitly addressed the first and second factors of the test. The Court noted that Regal's objection put Capitol on actual notice of the objection and its basis and determined that Capitol would "in no way [be] prejudiced by a finding that the debtor substantially complied with these provisions." Relying on language in Eagle-Picher, the Court held that Capitol's claim failed on the merits and, therefore, to allow the claim because of a technicality in the objection would constitute a windfall to Capitol. (Bankruptcy Docket No. 1892, Memorandum Opinion at 6) ("[A] windfall merits no protection."(quoting In re Eagle-Picher, 285 F.3d at 530)).
Moreover, Capitol has presented no evidence that Regal's failure to file the affidavit until April prejudiced Capitol. Regal's objection read, "As assignor to Regal Cinemas, Inc., claimant is co-debtor and wants reimbursement for obligations to Landlord. Tenant is only obligated to pay the allowed amount under 502(b)(6) for lease rejection, and to pay to Landlord." (Bankruptcy Docket No. 1892, Memorandum Opinion, P. 4). This was sufficient to put Capitol on actual notice of the grounds for the objection to its claim. The fact that the supporting affidavit was not filed until April did not impair Capitol's ability to pursue its claim. Therefore, Capitol was not prejudiced by the defective service, and this element of the test is met.
As to the third element of the test, whether there is justifiable excuse for the failure to object properly, the Bankruptcy Court made no findings. Therefore, this court will review the record to determine if this element is satisfied. Regal's only argument here is that the error was not in bad faith. Lack of evidence of bad faith is insufficient to satisfy this factor; demonstration of a justifiable excuse is required. Since Regal has failed to present any excuse, this element has not been satisfied.
Although the Bankruptcy Court also did not make explicit findings as to the last element, whether Regal would be severely prejudiced by a finding that its objection was untimely, this element is clearly satisfied here. The Bankruptcy Court determined that denying Regal's objection would result in a $5,882,785.49 windfall to Capitol, and a partial double payment of the same liability by Regal, That outcome would clearly constitute severe prejudice to Regal.
Thus, the issue becomes whether the Bankruptcy Court's finding of substantial compliance, in the absence of a justifiable excuse, was an abuse of discretion. This court finds that it was not. In Eagle-Picker, though the Sixth Circuit utilized the four factor test, it merely "assume[d] without deciding" that that was the correct approach. The Bankruptcy Court had used it, and the appellants did not challenge its propriety. In re Eagle-Picher, 285 F.3d at 530 fn.8. Therefore, there is no controlling precedent in the Sixth Circuit that strict satisfaction of all four elements is necessary. Furthermore, because substantial compliance is an equitable doctrine, it must be applied flexibly, in the absence of contrary authority. The Bankruptcy Court has "broad equitable power to `prevent an abuse of process. . . .'" In re Eagle-Picher, 285 F.3d at 529 (citing 11 U.S.C. § 105(a)). Therefore, in light of the fact that (a) Capitol received timely notice of Regal's objection and its basis; (b) Capitol was not prejudiced by Regal's failure to timely include the affidavit; and (c) Regal would be severely prejudiced by rejection of its objection, the Bankruptcy Court did not abuse its discretion in finding substantial compliance with the LBR and plan requirements.
C. Merits of Capitol's Claim
This court reviews the Bankruptcy Court's conclusions of law de novo and its factual determinations for clear error. See MJ. Waterman, 227 F.3d at 607. The Bankruptcy Court's analysis of the merits of Capitol's claim is sound and need not be repeated here. This court agrees entirely with this portion of the Bankruptcy Court's opinion (Bankruptcy Docket No. 1892 at 6-14) and adopts it by reference.
III. CONCLUSION
For the foregoing reasons, the Bankruptcy Court's grant of summary judgment to Regal is AFFIRMED.