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The Delaware Bankruptcy Insider is a premier blog designed to bring its readers a comprehensive analysis of the latest Delaware corporate bankruptcy news and rulings. Brought to you by Ashby & Geddes, P.A.
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- Third Circuit Reversal Paves the Way For NextEra to Potentially Recover Administrative Expenses Incurred in Connection With Failed Merger
- Delaware District Court Disagrees with Bankruptcy Court’s Ruling and Holds That Committee’s Challenge Rights Survived Entry of the Sale Order and Consummation of Sale
Creditors’ Proofs of Claim Denied as Untimely Filed
In re New Century TRS Holdings, Inc., No. 07-10416 (KJC) (Bankr. D. Del. Mar. 4, 2014) (“Cromwell“); In re New Century TRS Holdings, Inc., Adv. No. 11-53199 (KJC) (Bankr. D. Del. Mar. 7, 2014) (“Silva“)
On March 4, 2014, Judge Carey issued a Memorandum denying pro se creditor Cromwell’s motion for an order approving her proof of claim as timely filed. Then on March 7, 2014, Judge Carey issued a second Memorandum in the same bankruptcy case denying a similar motion filed by pro se creditor Silva. The Court follows a similar analysis when applying the excusable neglect standard to untimely filed proofs of claim, but in the Cromwell Memorandum the Court also discusses the standard to qualify as an unknown creditor. The Cromwell Memorandum is more comprehensive, and is summarized below.
In 2007, the debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code and the Court entered an order establishing a deadline by which creditors of the debtor were to filed claims (i.e., the “bar date”). Notice of the bar date was mailed to known creditors and published both nationally and locally. It was not until late May 2010, almost three years following the bar date, that the debtors received Cromwell’s proof of claim, which related to two loans obtained by Cromwell from the debtors. In support of her motion, Cromwell argued that she was a “known” creditor entitled to actual notice of the bar date of which she did not receive and, in the alternative, that her untimely filing was excusable neglect.
The Court held that the Cromwell was, in fact, an unknown creditor and thus, not entitled to actual notice. Having previously ruled on this exact issue, see White v. New Century TRS Holdings, Inc. (In re New Century Holdings, Inc.), 450 B.R. 504, 511-513 (Bankr. D. Del. 2011), Judge Carey repeated his discussion regarding “known” and “unknown” creditors, quoting the Third Circuit: “[A]n ‘unknown’ creditor is one whose ‘interests are either conjectural or future or, although they could be discovered upon investigation, do not in due course of business come to knowledge [of the debtor].” Chemetron Corp. v. Jones, 72 F.3d 341, 346 (3d Cir. 1995). Because certain correspondence from, as well as a state court complaint filed by, the creditor were not delivered to the debtors until one year after the bar date, the creditor was not “known” by the debtors when they served notice of the bar date. While the debtors’ books and records may have indicated that Cromwell was a customer, they did not reflect any claims known or otherwise held by Cromwell. In light of the foregoing as well as the fact that Cromwell’s claim could not have been discovered upon investigation or come to be known by the debtors in the due course of business, the Court concluded that Cromwell was an unknown creditor and that the debtors’ publication efforts satisfied her due process rights.
Applying the standard articulated by the United States Supreme Court in Pioneer Inv. Serv. Co. v. Brunswick Assoc. Ltd. P’ship, 507 U.S. 380 (1993), the Court further found that Cromwell had not carried her burden of establishing excusable neglect for filing a late proof of claim. Among other things, the Court found that the prejudice to the debtors of allowing Cromwell’s claim would be substantial as it would “open the floodgates to filings of similar claims,” and that the delay in filing her claim was significant. As noted by the Court, Cromwell’s ignorance of her claim did not constitute excusable neglect and, importantly, her later discovery of the claim did not cause her to act for almost two years. In total, the circumstances were deemed by the Court to support a denial of Cromwell’s claim.