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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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The Bar Date Is Like A Statute Of Limitations; It Must Be Followed
In re Nortel Networks Inc., No. 09-10138 (KG), 2017 WL 2821535 (Bankr. D. Del. June 29, 2017)
In this Opinion, the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) rendered a seemingly “harsh” decision necessitated by the “unreasonable relief” requested. Op. at 16. Seven years after the September 30, 2009 deadline to file proofs of claim (the “Bar Date”), SNMP Research International, Inc. (“SNMPRI”) and SNMP Research, Inc. (“SNMPR”, and together with SNMPRI, “SNMP”) moved for authority for SNMPRI to file amended proofs of claim and an order adding SNMPR as a claimant.
Some brief background is necessary as the facts are important to the Court’s decision. SNMPR owns software that it licenses to SNMPRI, which then sells and licenses the software to customers. The Debtors were one of the customers that executed a license agreement with SNMPRI to use software. Prior to the Bar Date, SNMPRI filed proofs of claim for $22,281 for unpaid royalties and other fees under the license. Over the next six years, SNMPRI amended its claim five times, finally arriving at $8,414,695 for its alleged contractual royalties claim. In the midst of these amendments, on November 2, 2011, SNMP commenced an adversary proceeding seeking damages for copyright infringement, misappropriation of trade secrets and breach of contract.
The proposed claims that SNMPRI sought authority to file aggregated $81,102,247 – almost ten times more than the previously filed proofs of claim – for violations of the U.S. Copyright Act. Boiled down, “SNMPRI . . . converted its claim for contractual royalties to a claim for more than $81 million of alleged copyright infringement damages.” Op. at 4. SNMPRI also sought to add SNMPR as a claimant, recognizing that it may have been unable to bring infringement claims for copyrights that it does not own.
In the Opinion, the Court denied all of the relief sought, holding that “[a] bar date can be thought of as akin to a statute of limitations, and must be followed.” Op. at 7. In rendering its decision, the Court took a “hard line” in applying the four factor test for excusable neglect articulated by the United States Supreme Court in Pioneer Investment Services Co. v. Brunswick Associates L.P., 507 U.S. 380 (1993). Op. at 6. As recognized by other courts, the four factors do not carry equal weight as the excuse for the late filing is the most important. Here, the Court found that SNMP’s neglect in not naming SNMPR as a claimant in the original claim was a deliberate decision and an error in judgment. SNMP had legal representation when they filed the original claim and five amendments, and “[i]gnorance of the law is not excusable neglect.” Op. at 5. In any event, waiting seven years after the Bar Date (and five years after the infringement claim alleged in the adversary proceeding) was found by the Court to be very much inexcusable.
SNMP also argued (unsuccessfully) that it should be permitted to add SNMPR to the proposed claims under Rules 15 and 17 of the Federal Rules of Civil Procedure (the “Federal Rules”). As noted by the Court, relation back under Federal Rule 15 cannot be used to add a party. Regardless, the Court found that SNMP “slept on their rights” and “ignorance is not a sufficient reason to permit amendment.” Federal Rule 17 was found likewise inapplicable and not a remedy for a very late filed claim.
Ultimately, the Court determined that the proposed claims and motion to amend were an effort by SNMP to file an entirely new claim, and noted that creditors cannot “use the claims amendment process to circumvent the claims bar date.” Op. at 10. The “massive” increase in damages in the proposed claim and resulting prejudice to the Debtors also weighed into the Court’s decision. Op. at 11-12. Finally, the Court noted an additional reason why the motion should be denied – SNMPRI lacked constitutional standing to assert a claim for copyrights that it did not own. Indeed, the Court would not permit SNMPRI to substitute SNMPR as the real party in interest to fix its mistake.