The opinion of the court was delivered by: John G. Koeltl, District Judge
This is an appeal from the Order Granting Debtors' Limited Objection to Convertible Noteholder Claims Nos. 2404, 2821, 2823, 6247, 6249, 6280, 6299 and 6300 (the "Order") entered by the United States Bankruptcy Court for this district (the "Bankruptcy Court") on August 10, 2007. (Docket No. 5595). The appeal is brought by certain holders of convertible notes and their respective successor indenture trustees (the "Appellants"). The convertible notes were issued by Calpine Corporation ("Calpine," and together with its affiliated debtors and debtors-in-possession, the "Debtors"). There is jurisdiction to hear the appeal pursuant to 28 U.S.C. § 158(a)(1).
The central issue on this appeal is whether the Bankruptcy Court erred in finding that the appellant indenture trustees and noteholders were not entitled to compensation for the alleged loss of the conversion rights of their convertible debentures. The Bankruptcy Court found that the claims for the alleged loss of such rights were untimely and in any event without merit in view of the fact that all of the notes were accelerated and the debtors were entitled to principal and interest but not, in addition, to compensation for the alleged loss of the conversion rights.
The Court has reviewed the Bankruptcy Court's thorough decision granting the Debtors' limited objection (the "Limited Objection") and the arguments of the parties to this appeal. The Order is affirmed in part and vacated and remanded in part. The Appellants' motion to withdraw the reference is denied without prejudice.
The following facts are undisputed unless otherwise noted. Between 2000 and 2005, Calpine issued four series of unsecured convertible notes (the "Convertible Notes" or "Notes"). Calpine issued the 6.00% Convertible Senior Notes Due 2014 (the "6% Notes") and the 7.75% Contingent Convertible Senior Notes Due 2015 (the "7.75% Notes) pursuant to an indenture, dated as of August 10, 2000, (the "Original Indenture" and, as supplemented by the First Supplemental Indenture, dated as of September 28, 2000, the Second Supplemental Indenture, dated as of September 30, 2004, and the Third Supplemental Indenture, dated as of June 23, 2005, the "Indenture"). (See R. App. for Br. of DebtorsAppellees Exs. 2-4.) Calpine issued the 4.75% Contingent Convertible Senior Notes Due 2023 (the "4.75% Notes") pursuant to a separate indenture, dated as of November 14, 2003, which was superseded by the Amended and Restated Indenture dated as of March 12, 2004 (the "4.75% Indenture and, together with the Indenture, the "Indentures"). (Id. Ex. 5.)*fn1 New York Law governs the Indentures. (See Original Indenture § 10.11; Second Supplemental Indenture § 12.07; Third Supplemental Indenture § 12.07; 4.75% Indenture § 12.08.) On December 20, 2005 (the "Petition Date"), the Debtors filed petitions under Chapter 11 of the Bankruptcy Code. As of the Petition Date, approximately $1.8 billion in principal was outstanding under the Convertible Notes.
On April 26, 2006, the Bankruptcy Court issued an order establishing August 1, 2006 as the Bar Date for filing proofs of claim.*fn2 (See App. for Opening Br. of 7.75% Noteholders Ex. 10.) On July 19, 2006, Wilmington Trust Company, as indenture trustee for the 7.75% Notes, filed a Proof of Claim asserting claims for (a) principal and interest and (b) other unliquidated charges under the Indenture. (Claim 2404, R. App. for Br. of DebtorsAppellees Ex. 6.) The other unliquidated charges were defined as "[a]ll other interest, charges, penalties, premiums, and advances which may be due or become due under the Notes and the Indenture...." (Id. at 2.) On July 26, 2006, HSBC Bank ("HSBC"), as successor indenture trustee for the 4.75% and 6% notes, filed two Proofs of Claim asserting similar claims for, in addition to principal, interest, and trustee fees, "any and all other amounts due or to become due under the Indenture and the Notes, whether now due or hereafter arising, which amounts may, presently, be unliquidated or contingent, but may become fixed and liquidated in the future, including . . . compensatory, secondary and/or punitive damages...." (Claim 2821 § 2(f) and Claim 2823 § 2(d), R. App. for Br. of DebtorsAppellees Exs. 7-8.) The relevant Indenture was attached to the Proofs of Claim. On January 30, 2007, the Bankruptcy Court approved a stipulation and order entered into by the Debtors and HSBC allowing claim amounts for the principal and prepetition accrued interest due on the 4.75% Notes and 6% Notes. The stipulation reserved any "unliquidated claims" asserted in the Proofs of Claim for the plan of reorganization process or claims reconciliation process. (R. App. for Br. of Debtors-Appellees, Ex. 13 at 8.)
In March, April, and May of 2007, HSBC and Manufacturers and Traders Trust Company (collectively, the "Successor Indenture Trustees"), filed supplemental Proofs of Claim. (See R. App. for Br. of Debtors-Appellees Exs. 15-19.) In addition to principal and interest on the Convertible Notes, the supplemental Proofs of Claim state claims for (i) the conversion rights and (ii) damages for breach of the Indentures including the conversion rights (the "Conversion Right Claims" or "New Claims"). (Claim 6280 ¶ 4, Claim 6299 ¶ 4, and Claim 6300 ¶ 4.)*fn3
The Debtors filed their initial joint plan of reorganization and disclosure statement on June 20, 2007 (the "Initial Plan," and, as amended on August 27, 2007 and September 18, 2007, the "Plan").
On July 6, 2007, the Debtors filed a limited objection to the Appellants' Proofs of Claim (the "Limited Objection"). (Docket No. 5206, R. App. for Br. of Debtors-Appellees Ex. 27.) The Limited Objection sought disallowance of the "New Claims," defined as "damages for any 'breach' of the Conversion Rights." (Id. at 12-13.) On August 8, 2007, the Bankruptcy Judge issued a ruling from the bench on the Limited Objection (the "Opinion"), holding: (1) the timely-filed Proofs of Claim did not encompass the Conversion Right Claims; (2) the Conversion Right Claims did not "relate back" to the Original Claims and therefore were new claims rather than amendments; (3) equitable factors weighed against considering the Conversion Right Claims, whether as new claims or as amendments to the timely-filed Proofs of Claim; (4) the Conversion Right Claims had no merit; and (5) to the extent the Conversion Right Claims were allowable they were subject to subordination to the level of common stock under Section 510(b) of the Bankruptcy Code. (Tr. 97-101, Aug. 8, 2007, R. App. for Br. of Debtors-Appellees Ex. 1.) On August 10, 2007, the Bankruptcy Court entered the Order, which disallows not only the Conversion Right Claims but also any claims under the Indentures beyond principal, accrued interest and "reasonable prepetition indenture trustee fees," including "any actual or potential claims, premiums or penalties related to any contract defaults or damages." (Order ¶ 3.)
The Court reviews the Bankruptcy Court's conclusions of law de novo and its findings of fact for clear error. Citibank, N.A. v. Vebeliunas, 332 F.3d 85, 90 (2d Cir. 2003); In re Johns-Manville Corp., 340 B.R. 49, 58 (S.D.N.Y. 2006); see also Fed. R. Bankr. P. 8013. A bankruptcy court's denial of leave to amend a timely-filed Proof of Claim or a request to file a late claim is reviewed for abuse of discretion. Midland Cogeneration Venture Ltd. P'ship v. Enron Corp. (In re Enron Corp.), 419 F.3d 115, 124 (2d Cir. 2005); Integrated Resources, Inc. v. Ameritrust Co. Nat'l Ass'n (In re Integrated Resources, Inc.), 157 B.R. 66, 70, 72 (S.D.N.Y. 1993). The bankruptcy court abuses its discretion when "no reasonable man could agree with the bankruptcy judge's decision." In re Integrated Resources, Inc., 157 B.R. at 72. The parties have agreed that the language of the Indentures is unambiguous, and therefore the Bankruptcy Court's interpretation of the Indentures is subject to de novo review. Network Publishing Corp. v. Shapiro, 895 F.2d 97, 99 (2d Cir. 1990).
The Appellants argue that the timely-filed Proofs of Claim (the "Original Claims") encompassed a claim for breach of the conversion rights based on the broad language of the Original Claims and the attached Indentures. In the alternative, the Appellants contend that the Bankruptcy Court abused its discretion when it found that the Conversion Right Claims did not "relate back" to the Original Claims and therefore were late-filed new claims rather than amendments, and in any event the Bankruptcy Court should have considered the New Claims on equitable grounds.
The Appellants argue that the Original Claims encompassed the Conversion Right Claims.*fn4 Under the Federal Rules of Bankruptcy Procedure, a "proof of claim is a written statement setting forth a creditor's claim." Fed. R. Bankr. P. 3001. The purpose of the claim filing requirement of the Bankruptcy Code is "to ensure that all those involved in the proceeding will be made aware of the claims against the debtor's estate and will have the opportunity to contest those claims." Aetna Cas. & Surety Co. v. LTV Steel Co. (In re Chateaugay Corp.), 94 F.3d 772, 777 (2d Cir. 1996) (quoting Liona Corp. v. PCH Assocs., (In re PCH Assocs.), 949 F.2d 585, 605 (2d Cir. 1991)). The Appellants argue that the catch-all language in the Original Claims and the attached Indentures put the Debtors on notice of the Conversion Right Claims. However, the Original Claims did not mention the Noteholders' conversion rights or any alleged breach of those rights. Moreover, the Appellants concede that they are not aware of any bankruptcy case where convertible noteholders were allowed claims for damages for the loss of their conversion rights. (See Hr'g Tr. 9:3-22, 58:12-24, Oct. 15, 2007.) Given the novel nature of the Conversion Right Claims, the catch-all provision would not have provided the Debtors reasonable notice that the Noteholders were asserting claims for breach of those rights.
The cases cited by the Appellants are distinguishable. In these cases, the contested claims were not based on a novel theory of recovery and the Proof of Claims used sufficiently specific language to put a reasonable person on notice of the contested claims. See, e.g., id. at 776-77 (reasonable person put on notice of Department of Labor's right to offset black lung liability against tax refund where the claim filed by the Department of Labor stated that it was "subject to the United States's right to withhold subject to offset amounts due from another Federal entity...."); In re Bloomingdale Partners, 160 B.R. 101, 108 (Bankr. N.D. Ill. 1993) (finding sufficient notice of claim for common law nuisance where it was "clear from the face of the proof of claim that the [creditors were] seeking money damages from the Debtor on account of the Debtor's emanation of excessive noise from its building"). While a Proof of Claim does not necessarily require absolute precision, it still must provide sufficient notice to the parties. The language of the Original Claims and the attached Indentures did not provide sufficient notice to the Debtors of the Conversion Right Claims.
The Bankruptcy Court did not abuse its discretion in finding that the newly asserted Conversion Right Claims were time-barred and refusing to allow them as amendments or new claims. The Appellants argue that the New Claims "relate back" to the Original Claims and therefore the Bankruptcy Court erred in ruling that the Conversion Right Claims were untimely new claims rather than amendments to the Original Claims. Under the bankruptcy rules, courts may permit post-bar date amendments to timely filed proofs of claim. See Fed. R. Bankr. P. 7015 (Rule 15 of the Federal Rules of Civil Procedure governing amendment of pleadings applies in adversary proceedings); In re Enron Corp., 419 F.3d at 133. In determining whether a proposed amendment relates back to a timely-filed claim, courts first examine "whether there was [a] timely assertion of a similar claim or demand evidencing an intention to hold the estate liable." In re Integrated Resources, 157 B.R. at 70 (quoting In re Black & Geddes, Inc., 58 B.R. 547, 553 (Bankr. S.D.N.Y. 1983)). A claim relates back to a timely filed claim if it "(1) corrects a defect of form in the original claim; (2) describes the original claim with greater particularity; or (3) pleads a new theory of recovery on the facts set forth in the original claim." In re Enron Corp., 419 F.3d at 133 (quoting In re McLean Indus., Inc., 121 B.R. 704, 708 (Bankr. S.D.N.Y. 1990)).
If the "relation back" threshold is satisfied, courts then examine whether, under the facts of the case, it would be equitable to allow the amendment. Id. (citing In re Integrated Resources, 157 B.R. at 70). Courts consider the following five equitable factors in determining whether to allow an amendment:
(1) undue prejudice to the opposing party; (2) bad faith or dilatory behavior on the part of the claimant; (3) whether other creditors would receive a windfall were the amendment not allowed; (4) whether other claimants might be harmed or prejudiced; and (5) the justification for the ...