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In re Brunswick Baptist Church

January 16, 2007

IN RE: BRUNSWICK BAPTIST CHURCH DEBTOR.
CHARLES BORDEN, ET AL., PLAINTIFFS,
v.
BAPTIST CHURCH, DEFENDANT.



Bankr. Case No. 03-13719

Chapter 11

MEMORANDUM-DECISION AND ORDER

This matter comes before the Court on a consolidated appeal, pursuant to 28 U.S.C. § 158(a), from a Memorandum-Decision and Order, dated July 29, 2005, an oral decision, issued on August 24, 2005, and a Decision and Order, dated August 29, 2005, of the United States Bankruptcy Court for the Northern District of New York (Littlefield, B.J.).

I. Facts

The facts and background, relevant to the present motion, are as follows. Charles Borden, Diane Borden, Lewis E. McNamee, III, Susan D. McNamee, Rickey Vest, and Thesera Vest (collectively, "Appellants") are plaintiffs in individual civil actions filed in New York State Supreme Court, Rennsselaer County against Brunswick Baptist Church ("Debtor"), a not-for-profit religious organization, between November 7, 2001 and April 24, 2003. In their individual actions, Appellants claim that they sustained serious personal injuries on June 20, 2001, while working on the construction of a new church building on the Debtor's premises. Debtor filed a voluntary Chapter 11 petition under Title 11 of the United States Code on May 29, 2003.

Appellants were individually named on the List of Creditors that accompanied Debtor's Chapter 11 petition, but their counsel were not listed for notice purposes. The original Notice of Chapter 11 Bankruptcy Case, Meeting of Creditors, & Deadlines was issued by the United States Bankruptcy Court Clerk's Office on June 4, 2003, however, it was not served on the creditor body before the expiration of the deadline for non-governmental creditors to file proofs of claim on September 29, 2003. As a result, on November 14, 2003, the Bankruptcy Court issued an Order fixing the deadline for creditors to file proofs of claim as March 15, 2004 (the "Bar Date Notice"). The Appellants received the Bar Date Notice at their personal residences, but did not forward it to their counsel, O'Connell and Aronowitz, P.C. ("OA"), in both the action at bar and the state court actions.

OA did not file a notice of appearance in this case on behalf of the Appellants until June 30, 2004. However, during the state court litigation, Debtor's counsel did notify OA, both verbally and in writing, that the Debtor intended to file for Chapter 11 protection. Appellants did not file general unsecured proofs of claim in the bankruptcy case until June 9, 2004, nearly three months after the March 15, 2004 deadline to file claims ("bar date"). As a result of Appellants' failure to file proofs of claim, Debtor's plan of reorganization only proposes a voluntary, nominal distribution of $3,000 total to Appellants. In a Memorandum-Decision and Order filed on July 29, 2005, Judge Littlefield denied Appellants' motion seeking to enlarge the period in which to file proofs of claim pursuant to Federal Rules of Bankruptcy Procedure 3003(c)(3) and 9006(b)(1).

Ryan Pratt ("Pratt"), like Appellants, filed a civil action against Debtor in New York State Supreme Court, Columbia County on February 1, 2002 alleging that he sustained serious personal injuries on June 20, 2001, while working for Debtor. Pratt was the only litigant to file a proof of claim, which he filed on August 15, 2003, before the first bar date expired. Debtor reached a settlement agreement with Pratt that called for Debtor's insurance policy*fn1 to pay him $450,000.00 in exchange for Pratt's release of all rights and claims against Debtor and its insurer related to the June 20, 2001 incident (the "Pratt Settlement"). The Bankruptcy Court determined that the Church Mutual policy was part of the bankruptcy estate and approved the Pratt Settlement on August 29, 2005.

II. Discussion

Appellants appeal from Judge Littlefield's Order denying their motion to enlarge the period in which to file proofs of claim pursuant to Federal Rules of Bankruptcy Procedure 3003(c)(3) and 9006(b)(1). Additionally, Appellants appeal from Judge Littlefield's Order approving the Pratt Settlement and holding that Appellants did not have standing to raise objections to the settlement. Moreover, Appellants appeal Judge Littlefield's holding that the proceeds of the Church Mutual insurance policy are property of the Debtor's bankruptcy estate and can be used to satisfy the Pratt Settlement.

A. Application to Enlarge the Period of Time to file a Proof of Claim

The bankruptcy court's factual findings are accepted unless clearly erroneous and its conclusions of law are reviewed de novo. See In re Arochem Corp., 176 F.3d 610, 620 (2d Cir. 1999). "Bankruptcy court decisions to deny a request to file late are reviewed for abuse of discretion." Midland Cogeneration Venture L.P. v. Enron Corp. (In re Enron), 419 F.3d 115, 124 (2d Cir. 2005). In the court below, Judge Littlefield denied Appellants' application to file late proofs of claim on two grounds: (a) Appellants were given adequate notice of the bar date when they, and not their counsel, received the Bar Date Notice, and (b) Appellants did not demonstrate that their failure to file timely claims was due to excusable neglect.

1. Adequate Notice

In general, due process requires notice that is "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. ...


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