Opinion
Case No. 02 B 02474.
August 19, 2004
MEMORANDUM OPINION
This matter is before the court on the Motion of Yolanda Jimenez ("Jimenez") to Extend Time to File Administrative Expense Claim Request and to Permit Liquidation of Claim. Jimenez, who asserts a postpetition discrimination claim, failed to file the administrative claim form by the June 20, 2003 bar date. She now seeks, inter alia, entry of an order extending the time for filing and deeming her claim timely based on excusable neglect.
BACKGROUND
On January 22, 2002, Kmart Corporation and thirty-seven of its subsidiaries and affiliates filed voluntary Chapter 11 petitions in this court. Kmart continued to operate as debtor in possession thereafter.
Jimenez was employed by Kmart as a department manager for thirty-two years at a store in Miami, Florida. Jimenez alleges that after the filing of the Chapter 11 petitions herein, in or around early May, 2002, Jimenez learned from another employee that management had decided to replace her with a younger employee as manager of the health and beauty department. Jimenez was fifty-nine years old at the time. She further alleges that after a campaign of humiliating comments intended to drive her to resign, the store manager advised her that she was to be demoted to part-time status, without benefits, including health insurance, and that her only other option was to resign. According to Jimenez, she could ill afford to be without health insurance, not only for her own medical needs but also for those of her disabled daughter. Jimenez claims that she therefore was forced to resign to attempt to obtain employment that would provide the necessary benefits. She asserts that she was left unemployed for a year and ultimately obtained a position providing no health insurance coverage and paying barely half of her earnings at Kmart. According to Jimenez, she will receive severely reduced retirement benefits because she was not permitted to work full-time to age 65.
Jimenez retained Marlow, Connell, Valerius, Abrams, Adler, Newman Lewis ("Marlow Connell") to represent her in connection with her discrimination charge. Jimenez was issued a right to sue letter by the EEOC, and Marlow Connell filed suit in the United States District Court for the Southern District of Florida on April 21, 2003.
Two days later, on April 23, 2003, this Court entered an order confirming the First Amended Joint Plan of Reorganization of Kmart Corporation and its Affiliate Debtors and Debtors-in-Possession, as modified (the "Plan"). The Plan became effective on May 6, 2003 (the "Effective Date"). Shortly after the Effective Date, Trumbull Services, LLC, the court-approved noticing agent in this case, caused to be served a "Notice Regarding (A) Entry of Order Confirming the First Amended Joint Plan of Reorganization of Kmart Corporation and its Affiliated Debtors and Debtors-in-Possession, (B) Occurrence of Effective Date, and (C) Notice of the Administrative Bar Date" (the "Notice"). Paragraph 7 on the fourth page of the Notice contained a section entitled "Administrative Claims Bar Date." That section stated that "Administrative Claims" (other than certain types of claims dealt with elsewhere in paragraph 7) had to be filed by June 20, 2003 (the "Administrative Bar Date").
According to a Trumbull affidavit, the Notice was mailed to attorney J. Ronald Denman at the Marlow Connell firm on May 9, 2003, and it was then mailed again, this time with an Administrative Expense Claim Request Form, on or about May 19, 2003. According to the Trumbull affidavit, neither mailing was returned as undeliverable.
Marlow Connell acknowledges receipt of the Notice on May 20, 2003. However, the secretary for Ronald Denman, the attorney handling the Jimenez file, filed the Notice away because she did not recognize it as a pleading relating to the district court case. At that time, Denman's secretary had been working for the firm for only fifteen days. Counsel for Jimenez also notes that nowhere on the Notice was it clearly indicated that the discrimination claim constituted an administrative expense; indeed, the Notice contained no definition of "administrative claim."
Shortly before Marlow Connell received the Notice, on or about May 13, 2003, Kmart filed an answer and affirmative defenses to Jimenez' complaint in the district court action. One of the affirmative defenses raised by Kmart was that the claim may be barred as the result of the bankruptcy case. Marlow Connell contacted Kmart's district court counsel, Devand Sukhdeo, and asked what the basis was for that defense. Sukhdeo said that he did not know whether the claim was barred or limited, but that he had to raise the defense as a precautionary measure. Indeed, during each of several settlement discussions held both before and after the bar date, Sukhdeo mentioned that he did not think that the claim was barred by the bankruptcy but that Jimenez had to provide a detailed breakdown of her damages and substantiation of same before Kmart would consider making any settlement offers.
On June 2, 2003, Sukhdeo served Kmart's initial disclosures in the district court action, pursuant to Fed.R.Civ.P. 26. The disclosures stated that documents responsive to the initial disclosure requirements were available for inspection and copying and that plaintiff should contact Kmart's counsel to make arrangements for same. Kmart's counsel offered to send copies by mail, and Marlow Connell requested that he do so. However, the documents were never received, despite several follow-up calls. According to Jimenez, such documents would have included the order confirming Kmart's Plan and other documents regarding the bankruptcy that would have referenced the bar date.
After the bar date, on July 22, 2003, Jimenez served her first requests for production, one of which sought "any and all documents which evidence that Plaintiff's claims are barred or limited by the bankruptcy protection afforded to the Defendant." Jimenez also served requests for admission, one of which asked for Kmart to admit that "[e]mployment discrimination actions which arose after the filing of the bankruptcy petition in case no. 02-B02474 . . . were not discharged . . ." Finally, Jimenez also served her first set of interrogatories, one of which asked Kmart to "state which post petition claims, if any, have been discharged . . . in Case No. 02-B02474 . . . and any deadlines set by the Court for filing a proof of claim or other notice of claim for employment discrimination claims . . . which arose after the filing of the bankruptcy case."
Kmart responded to the interrogatory by objecting to it as overbroad, irrelevant to the allegations in the district court action, and seeking information that was a matter of public record. With respect to the admission request, Jimenez alleges that a response was due on August 22, 2003, but Kmart waited until September 17, 2003 to deny that the claim was not discharged. In addition, Kmart failed to provide the documents requested, as set forth above, and Jimenez ultimately filed a motion to compel compliance with the various discovery requests.
According to Jimenez, Sukhdeo advised Marlow Connell in September, 2003 that he had been advised by Kmart's bankruptcy counsel that the district court discrimination action should be dismissed because the bankruptcy court had jurisdiction. He again stated that he did not think the claim had been discharged, but that the claim merely had to proceed in the bankruptcy court. Marlow Connell requested documentation to support that position, and Sukhdeo said he would have to review the bankruptcy documents and would get back to Marlow Connell within a few days. Sukhdeo failed to provide the documents, despite continued follow-up efforts by Marlow Connell.
Thereafter, on or about October 9, 2003, Sukhdeo filed in the district court action a motion for judgment on the pleadings and request for protective order, attaching, inter alia, the Plan and the confirmation order and asserting that Jimenez' claim was an administrative expense subject to the June 20, 2003 bar date.
An administrative claim form was then prepared, which Jimenez signed on October 31, 2003. The claim was received by the Clerk of this Court on November 3, and the Motion was filed on November 12, 2003.
The Notice, however, required that the claim forms be filed with Trumbull.
DISCUSSION
Rule 9006(b)(1) of the Federal Rules of Bankruptcy Procedure provides in relevant part that
when an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court, the court for cause shown may at any time in its discretion . . . (2) on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.
Prior to the Supreme Court's decision in Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), there was a disagreement among the circuits as to the meaning and scope of "excusable neglect." Robb v. Norfolk Western Railway Co., 122 F.3d 354, 358 (7th Cir. 1997). The Seventh Circuit was among those that interpreted the phrase narrowly. Id. That narrow approach was rejected in Pioneer, and the Supreme Court made it clear that neglect could be excusable even where it was the result of carelessness on the part of a litigant or his attorney.
Of course, not all carelessness is excusable. The Supreme Court concluded in Pioneer that the determination of whether neglect is "excusable"
is at bottom an equitable one, taking account of all relevant circumstances surrounding the party's omission. These include . . . 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.
507 U.S. at 395. The four factors cited by the Court are, however, not exclusive. As the Seventh Circuit has noted, the Supreme Court "specifically rejected an approach that would `narrow the range of factors to be considered.'" Robb, 122 F.3d at 362.
In Robb, for example, the Seventh Circuit held that an attorney's "track record" may be considered as one of the circumstances bearing on whether his negligence constitutes "excusable neglect." Another factor that has been considered is the attorney's relative experience in the area at issue. In U.S. v. Brown, 133 F.3d 993 (7th Cir. 1998), cert. denied, 523 U.S. 1131, 118 S.Ct. 1824, 140 L.Ed. 2d 960 (1998), the defendant's attorney in a criminal case filed an appeal one day late. He had miscalculated the 10-day deadline, believing that weekends and holidays tolled the appeal period. The trial court considered the attorney's inexperience in federal court, his good faith, and the lack of prejudice resulting from his mistake. The Seventh Circuit affirmed, stating, inter alia, that "[t]hese are reasonable factors to consider, and ones invited by the Supreme Court in Pioneer and this court in Prizevoits." Brown, 133 F.3d at 997.
Although Robb involved a motion under Fed.R.Civ.P. 60(b)(1) for relief from a judgment based on allegations of "excusable neglect," the Seventh Circuit has noted that "the tenor of [the Pioneer decision] is that the term bears the same or similar meaning throughout the federal procedural domain." Prizevoits v. Indiana Bell Telephone Co., 76 F.3d 132, 134 (7th Cir. 1996).
The attorney was a Wisconsin lawyer, and his excuse was that he had confused Wisconsin rules with the federal rules. He believed that weekends and holidays tolled the 10-day deadline, which they would have in Wisconsin, because the prescribed period was less than 11 days. However, under Fed.R.App.P. 26(a), which was applicable to the appeal, weekend days were only to be excluded if the period was less than seven days. Brown, 133 F.3d at 996. The court noted that Brown was the attorney's only client in the federal courts. Id. at 997.
Prizevoits was a civil case where "experience within the federal courts worked against the attorney claiming excusable neglect." Brown, 133 F.3d at 997.
It must be remembered, however, that "[i]t is difficult to draw bright lines in this inquiry." Brown, 133 F.3d at 996. In U.S. v. Guy, 140 F.3d 735 (7th Cir. 1998), for example, the defendant's lawyer made a mistake identical to the one made in Brown. Nonetheless, the Seventh Circuit found the neglect inexcusable, noting that the attorney's level of experience was the "critical difference." In Guy, the defendant's lawyer was an experienced federal criminal appellate litigator who "must" have known how to compute the appeal deadline in a federal criminal case. Guy, 140 F.3d at 736.
The court also noted that the Brown decision had "probed the outer boundaries of excuse." Guy, 140 F.3d at 736.
Again, the fact-intensive and equitable inquiry required by Pioneer is a balancing test, and "[b]alancing tests naturally produce indeterminacy; focusing on one factor may change the balance, and, in turn, the result." Brown, 133 F.3d at 997.
In this case, Marlow Connell acknowledges receipt of the Notice but contends that its neglect is excusable under all the circumstances of this case. Kmart, of course, contends otherwise, pointing out that it not only sent the Notice twice to Marlow Connell, but also sent it twice directly to Jimenez.
It should first be noted that transmission of the Notice to Jimenez adds nothing to Kmart's position, since Jimenez' claim arose postpetition and Kmart's obligation was therefore to send the Notice to her counsel. See this Court's discussion in its January 7, 2004 Memorandum Opinion on the Motion of Johnnie Brous for Enlargement of Time Pursuant to Fed.R.Bankr.P. 9006(b) to Permit the Filing of Her Administrative Proof of Claim (Docket No. 20096), at 8-9. That is particularly true here, as Jimenez is a lay person, and this Court has found that even an attorney's neglect in failing to apprehend the applicability of the Notice to a postpetition personal injury claim may, in certain circumstances, be excusable. The Notice did not define "Administrative Claims;" it merely included on the first of its seven pages a statement that capitalized terms and phrases would, unless otherwise defined in the Notice, have the meanings set forth in the Plan and Confirmation Order, neither of which were served with the Notice. The only definition of "Administrative Claims" actually included in the package was contained not in the Notice itself, but in the instructions on the back of the claim form.
See, e.g., memorandum opinions on motions of Marie and Anthony Papa, Jennifer Paeth, Pauline and William Edwards, and Gladys Sewald, entered on January 6, 2004 (Docket No. 20042), December 3, 2003 (Docket No. 19549), December 3, 2003 (Docket No. 19552), and November 20, 2003 (Docket No. 19283), respectively.
Section 503(b) of the Bankruptcy Code provides for the allowance, as "administrative expenses," of "the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case" and certain taxes. It would not, of course, be readily apparent that a postpetition claim for discrimination or personal injury might constitute a cost of "preserving the estate," and the types of claims that are specifically mentioned in the statute are of a totally different nature. However, in 1968, the Supreme Court held that a tort claim resulting from the negligence of a receiver in an arrangement proceeding under Chapter XI of the former Bankruptcy Act was entitled to administrative priority, reasoning that "actual and necessary costs" of administration should be construed to include "costs ordinarily incident to operation of a business, and not be limited to costs without which rehabilitation would be impossible." Reading Co. v. Brown, 391 U.S. 471, 483, 20 L.Ed.2d 751, 88 S.Ct. 1759 (1968). The Reading doctrine survived enactment of the Bankruptcy Code and is sometimes referred to as the " Reading exception" to the usual requirements for administrative priority, e.g., that the expense benefited the estate. See, e.g., In re Jack/Wade Drilling, Inc., 258 F.3d 385, 387-88 (5th Cir. 2001); 4 L. King, Collier on Bankruptcy ¶ 503.06[3][c][i] (15th ed. rev. 2003).
The other categories included in § 503(b) relate, inter alia, to professional compensation and reimbursement of expenses, as well as to fees and mileage payable under chapter 119 of title 28.
Marlow Connell raises this issue, contending that it would be difficult to apprehend that the Notice applied to a postpetition discrimination claim. Kmart responds by stating that the issue is irrelevant, since the Notice was immediately filed away by Denman's secretary. Indeed, Kmart focuses on the fact that two copies of the Notice were sent to Marlow Connell and insists that Marlow Connell should explain what happened to the other notice.
Kmart's desired focus is understandable, as it tends to deflect attention away from the role that Kmart played in this situation, — regardless of whether two notices were received by Marlow Connell. It is true that the firm's failure to apprehend and docket the deadline was neglectful; but that does not end the inquiry. As indicated above, the "excusable neglect" determination is equitable in nature. Kmart's district court counsel, Devand Sukhdeo, advised Marlow Connell prior to the bar date that he had raised the discharge defense merely as a precautionary measure and that he did not think the claim was barred. Sukhdeo reiterated this belief in settlement discussions after the bar date. He also failed to respond to discovery directed specifically to the existence of the bar date and the basis for the alleged discharge defense. He did not specifically assert the bar date as a defense until he filed his motion for judgment on the pleadings and for a protective order on October 9, 2003. The Court does not suggest that Sukhdeo intended to cause delay in this case. Indeed, when Kmart's bankruptcy counsel was asked at the hearing why the discovery had been delayed, she stated that she believed Kmart's district court counsel was getting contradictory advice as to whether the district court action was going to be stayed by the plan injunction; "he was trying to figure out whether or not he needed to go ahead with [the action] . . . or whether he should sit back and see what happened." (Transcript, at 100-101).
Nonetheless, had Kmart's district court counsel provided even an informal response to the information requested concerning the bar date and the discharge defense, the delay would have been dramatically reduced. Moreover, the actual delay in this case is minimal and nonprejudicial. Marlow Connell filed this motion only one month after the filing of Kmart's motion for judgment on the pleadings, which alleged the June 20, 2003 bar date for Jimenez' discrimination claim.
Under all of the circumstances presented here, including, inter alia, the claimant's (and Marlow Connell's) obvious good faith, forfeiture of any claim, regardless of its merits, would be an excessive sanction. In Brown, discussed above, the court regarded dismissal of the late-filed appeal as a "harsh sanction for a relatively minor legal mistake," and noted that "[p]roportionality has its appeal." Brown, 133 F.3d at 997 (citing a pre- Pioneer case, Lorenzen v. Employees Retirement Plan of the Sperry Hutchinson Co., 896 F.2d 228, 232-33 (7th Cir. 1990) for the proposition that "`[i]f the mistake is slight, nonprejudicial, easily understandable, could happen to the best of us, etc., then dismissal of the appeal, with prejudice, may be an excessive sanction.").
Accordingly, "[a]lthough inadvertence, ignorance of the rules, or mistakes construing the rules do not usually constitute `excusable' neglect," Pioneer, 507 U.S. at 392 (emphasis added), under all the circumstances of this case, the neglect was excusable.
CONCLUSION
For all of the reasons set forth above, the Court grants Jimenez' motion, and the claim received by this Court on November 3, 2003 will be deemed timely filed with Trumbull. This opinion constitutes the Court's findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052. A separate order will be entered pursuant to Bankruptcy Rule 9021.