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In re Tender Loving Care Health Services

March 26, 2009

IN RE: TENDER LOVING CARE HEALTH SERVICES, INC. N/K/A DSMP HOLDINGS, INC.
ROGER JACKSON PLEASANT, APPELLANT,
v.
TLC LIQUIDATION TRUST, APPELLEE.



SYLLABUS BY THE COURT

Appeal from the September 26, 2007 judgment of the United States District Court for the Eastern District of New York (Bianco, J.) affirming the United States Bankruptcy Court's order denying Appellant's motion to compel payment on a claim and granting the cross-motion of the Debtors' successor, Appellee TLC Liquidation Trust, for reconsideration of allowance of the claim. We hold that when a bankruptcy court allows a claim after the debtor has objected to it, the claim has not been "entered without a contest" under Federal Rule of Bankruptcy Procedure 9024. The fact that the parties have settled their dispute over the claim without additional court proceedings to decide the merits of the claim does not change this analysis. As a result, pursuant to Rule 9024, there is a one-year limit within which to file a motion for reconsideration of such a claim. Because that time limit had expired for bringing the motion to reconsider the claim at issue, we REVERSE and REMAND.

Per curiam.

Argued: September 23, 2008

Before: WESLEY, HALL, and GIBSON,*fn1 Circuit Judges.

Appellant Roger Jackson Pleasant ("Pleasant") appeals from the September 26, 2007 judgment of the United States District Court for the Eastern District of New York (Bianco, J.) affirming the United States Bankruptcy Court's order denying Pleasant's motion to compel payment on a claim and granting the cross-motion of TLC Liquidation Trust (the "Trust") for reconsideration of allowance of the claim. The district court determined that the bankruptcy court had not erred when it decided that the claim had been "entered without a contest" and that, as a result, the motion for reconsideration of the claim was not subject to the time restrictions of Rule 9024 of the Federal Rules of Bankruptcy Procedure ("Rule 9024").*fn2 The district court then affirmed the bankruptcy court's determination that the Trust's motion for reconsideration should be granted for "cause" under 11 U.S.C. § 502(j) on the basis that Pleasant's claim included unmatured post-petition interest on an unsecured pre-petition claim. Because the Debtors initially filed an objection to Pleasant's claim in the bankruptcy proceedings, we hold that Pleasant's claim was not "entered without a contest" even though the parties negotiated a settlement and the bankruptcy court's involvement was limited to entering an order approving it. For that reason the Trust's motion is subject to Rule 9024's one-year time limit for motions to reconsider. Because it was untimely, we REVERSE and REMAND for further proceedings consistent with this opinion.

Background

On November 8, 2002, Tender Loving Care Health Care Services, Inc. ("TLC") and certain subsidiaries (collectively, "Debtors") filed for Chapter 11 bankruptcy. Prior to declaring bankruptcy, the Debtors had entered into a promissory note in August 1995 agreeing to pay Pleasant $1,588,981.00, plus interest from the date of execution, due and payable on September 1, 2010. The promissory note provided that "[i]n the event of . . . default in payment of any installment of principal or interest hereof as the same becomes due . . . the Holder may without further notice, declare the remainder of the principal sum, together with all interest accrued thereon and all interest which will accrue during the remainder of the balance of the term of this Note, at once due and payable."

Based upon the promissory note, Pleasant filed a timely proof of a general unsecured claim in Debtors' bankruptcy proceeding. This claim, No. 1015 ("Claim 1015"), was made in the amount of $1,975,000.*fn3 As part of their Ninth Omnibus Objection to Claims, Debtors objected to the claim, contending that it should be reduced to the amount of $1,435,791.18. Debtors identified Claim 1015 as one of six claims to which "debtors object[ed] . . . because the amounts listed on each Claim [were] greater than the amounts reflected on the Debtors' books and records as due and owing to that claimant."

Pleasant was served with notice of the objection to the claim, as well as notice of the hearing at which the bankruptcy court would address that objection. Settlement negotiations took place, and Debtors agreed to adjourn the hearing involving Claim 1015 until a later date than was originally noticed. The court then ordered that the hearing would be held on November 22, 2004. At that hearing, Debtors' counsel represented to the bankruptcy court that Debtors and Pleasant had reached an agreement with respect to Pleasant's claims related to the "ninth omnibus objection to certain notes payable claimed" and that Debtors' counsel would be submitting an order to the court reflecting that agreement. The court entered the order on December 1, 2004, which included the allowance of Claim 1015 in the reduced amount of $1,788,400.

On December 20, 2004, the bankruptcy court entered an order confirming the Third Amended Joint Plan of Liquidation of the Debtors dated September 8, 2004, as modified. Pursuant to that plan, the TLC Liquidation Trust was created by agreement. By the terms of the agreement, FTI Consulting, Inc. was appointed as the trustee (the "Trustee"). The agreement specifically provided that the Trustee: shall be the successor-in-interest to the Debtors with respect to any action which was or could have been commenced by the Debtors prior to the Effective Date which constitutes a Cause of Action which is a Trust Asset and shall be deemed substituted for the same as the party in such litigation.

The Trustee made a determination that when Claim 1015 was settled for $1,788,400, the amount included post-petition interest, contrary to the bankruptcy code. See 11 U.S.C. § 502(b)(2). Accordingly, in June 2006, the Trustee paid Pleasant $1,680,662 with respect to the claim on the basis that it was the correct amount outstanding and permitted by the Code. By letter at that time, the Trustee gave Pleasant a final accounting, stating that Pleasant was not entitled to any additional payments on the claim.

In July 2006, Pleasant filed a motion to compel full payment of its claim, which the Trustee subsequently opposed on behalf of the Trust. The bankruptcy court denied Pleasant's motion and, reading the Trust's opposition papers as a cross-motion for reconsideration and reduction of the claim, granted that cross-motion and determined that the amounts already paid on the claim were proper. See In re Tender Loving Health Care Servs., Inc., No. 02-88020-SB, slip op. at 4 (Bankr. E.D.N.Y. Aug. 31, 2006). The bankruptcy court decided that it could reconsider the claim, pursuant to 11 U.S.C. §502(j) ("A claim that has been allowed or disallowed may be reconsidered for cause"), on the grounds of mistake of law or fact. See id. at 2. The court stated that "it is indisputable that this claim is materially and erroneously overstated." Id. at 3.

The bankruptcy court further held that the claim was not time barred by Rule 9024. Id. Rule 9024 states that:

Rule 60 F.R.Civ.P. applies in cases under the Code except that (1) a motion to reopen a case under the Code or for the reconsideration of an order allowing or disallowing a claim against the estate entered without a contest is not ...


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