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In re Bruno Machinery Corp.

July 12, 2007

IN RE BRUNO MACHINERY CORP. CHAPTER 11 DEBTOR.
ONTARIO DIE COMPANY, LTD., APPELLANT,
v.
BRUNO MACHINERY CORP., APPELLEE.



Bankr. Case No. 05-20412

MEMORANDUM-DECISION AND ORDER

On August 31, 2006, Appellant Ontario Die Company, Ltd. ("Ontario" or "Creditor") filed with this Court a Notice of Appeal from an Order of the United States Bankruptcy Court for the Northern District of New York (Littlefield, B.J.), entered on August 25, 2006, denying Appellant's Motion to allow late filed proof of claim. This appeal was filed with this Court on October 2, 2006. Appellant now contends that the Bankruptcy Court erred and abused its discretion by not finding excusable neglect when the ability to file timely was entirely within Ontario's counsel's control. For the following reasons, the August 25, 2006 decision of the Bankruptcy Court is reversed.

I. BACKGROUND

Debtor Bruno Machinery Corp. ("Bruno" or "Debtor") filed a Chapter 11 petition on December 27, 2005. Affirmation in Opposition to Motion by Ontario Die Company, Ltd. (Dkt. No. 3, Rec. 6) at ¶ 1. Ontario was included as a creditor on Schedule F of the Petition. Id. at ¶ 2.

The debt was listed as disputed.*fn1 Id. at ¶ 3. On December 28, 2005, the Court issued notice of the Petition (which was sent to Ontario) and set a bar date of April 24, 2006 for filing proofs of claims. Id. at ¶1. On April 19, 2006, Ontario's counsel Amy Monahan ("Monahan") called the Bankruptcy Court Clerk's office to obtain assistance in filing the proof of claim. Affidavit of Amy M. Monahan (Dkt. No. 3, Ex. 4) at ¶ 9. She received no response from the Clerk's office and called the Clerk's office again on April 24, 2006. Id. Monahan was unable to obtain a password for the Court's Electronic Court Filing system ("ECF") and decided to overnight the proof of claim, having it arrive on April 25, 2006. Id. at ¶10. Monahan received a password on April 25, 2006 and immediately filed the proof of claim, along with requesting that Bruno consent to stipulating the claim as timely filed; Bruno refused. Id. at ¶12. On August 23, 2006, Ontario motioned the Bankruptcy Court to deem its proof of claim as timely filed. Affidavit of Scott Kosove (Dkt. No. 7, Ex. H). A hearing was held on that date and Judge Littlefield denied the motion on August 25, 2006. Affidavit of Scott Kosove (Dkt. No. 7, Exs. I and J). This timely appeal followed.

II. STANDARD OF REVIEW

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). "A district court abuses its discretion when it applies legal standards incorrectly or relies upon clearly erroneous findings of fact, or proceed[s] on the basis of an erroneous view of the applicable law." Harris v. Albany County Office (In re Harris), 464 F.3d 263, 268 (2d Cir. 2006) (internal quotation marks and citation omitted; alteration in original). The Court finds that Debtor did not suffer prejudice because of the diminishment of the claim pool and cost of litigating this issue, and that the reason for Monahan's delay was not per se inexcusable.

III. DISCUSSION

The Second Circuit has opined that the central function of a bar date is to facilitate the process of re-organization by informing debtors of what claims exist against them, at the time of obtaining bankruptcy protection, so that they may better plan a path out of bankruptcy. In re Enron Corp., 419 F.3d at 127-128. To the Second Circuit the crucial aspect of a bar date is so the re-organization happens in as efficient a manner as possible. Id. Congress struck a balance between facilitating re-organization and enabling creditors to collect debts owed to them in Federal Rule of Bankruptcy Procedure 9006(b)(1) ("Rule 9006(b)(1)"). This rule creates a balance by acknowledging that the bar date is strict thus facilitating re-organization, but that it can be extended when the failure to file on time was the result of excusable neglect in order to allow creditors every reasonable opportunity to obtain payment. FED. R. BANK. P. 9006(b)(1).

A. The Legal Standard Set Forth In Pioneer

Rule 9006(b)(1) sets the standard for enlarging the bar date as excusable neglect. The United States Supreme Court defined the standard in Pioneer Inv. Serv. Co. v. Brunswick Assocs. P'ship, 507 U.S. 380 (1993). The Supreme Court stated that Congress did not define excusable neglect in the rule, and so it examined the common usage of the term in order to reach the proper definition. Id. at 388. The Supreme Court stated that, "The ordinary meaning of 'neglect' is 'to give little attention or respect' to a matter, or, closer to the point for our purposes, 'to leave undone or unattended to esp[ecially] through carelessness.' Webster's Ninth New Collegiate Dictionary 791 (1983) (emphasis added). The word therefore encompasses both simple, faultless omissions to act and, more commonly, omissions caused by carelessness." Id. The Supreme Court then concluded that, "Congress plainly contemplated that the courts would be permitted, where appropriate, to accept late filings caused by inadvertence, mistake, or carelessness, as well as by intervening circumstances beyond the party's control." Id. The Supreme Court held that excuse is an equitable factor; in creating the Pioneer test the Court decided that a court ruling on whether or not excusable neglect exists must take into account everything surrounding the filing, including "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.

The Second Circuit by its own accord has taken a hard line toward applying the Pioneer test. Silivanch v. Celebrity Cruises, Inc., 333 F.3d 355, 368 (2d Cir. 2003). The Second Circuit notes that the four Pioneer factors do not have equal weight. Usually, the courts will not overly focus on the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, and whether the movant acted in good faith, because they tend to go for the partying seeking the extension. In re Enron Corp., 419 F.3d at122-123. Instead, the Circuit has stated that the crucial factor is the reason for the delay, including whether it was within the reasonable control of the movant. Id.

The Second Circuit admits that there is no exact science for determining how long a delay will be allowed, observing that some courts have allowed delays of years, while delays of a day have been precluded. Id. at 128. The key aspect in determining how long a delay is too long, is how the length of the delay will ...


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