The Late-filed Claim When Is an Act of God Not Excusable Neglect

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Dec/Jan 1999

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All lawyers and bankruptcy professionals know that it is generally best to file a proof of claim
on time in a bankruptcy case in order to avoid the need to litigate the many issues involved in
the late filing of a claim. Excusable neglect, adequate notice and "informal" claims are not
easily proven and frequently involve subjective determinations, and litigation of any kind
generally adds more expense to the case.

The Ninth Circuit Bankruptcy Appellate Panel's (BAP) recent decision in <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Edelman, 237
B.R. 146 (Bankr. 9th Cir., 1999)</a>, is illustrative of some of the pitfalls that can be
encountered as a result of a late-filed claim. While at first the result may seem rather harsh
considering the facts of the case, the opinion explains a not-often-considered distinction in the
rules governing the filing of claims in cases under chapter 7 and those under chapter 11.

<h3>The Edelman Case</h3>

On Jan. 17, 1994 (one day before the last day to file proofs of claim in the chapter 7 case of
Jack Edelman<a href="#2" name="2a">2</a>), at 4:31 a.m. PST, the Northridge Earthquake (6.7 magnitude on the Richter
Scale) struck 20 miles northwest of Los Angeles. The next morning, counsel for a creditor
attempted to enter his office building, but was not allowed into the building due to damage caused
by the earthquake and tests that were being conducted to determine the extent of the damage.
Counsel was unable to enter the building until Jan. 24, 1994. On that same day, counsel filed a
proof of claim on behalf of his client in the debtor's chapter 7 case asserting an unsecured,
non-priority claim of $127,944.

The trustee later filed an objection to the claim on the grounds that it was filed six days late. The
creditor took the position that the late-filed claim should be allowed because an "Act of God" had
prevented timely filing, and that alternatively, since its counsel had communicated with the
trustee by telephone during the chapter 11 case, including communication regarding the state
court action upon which the claim was based, this communication constituted an informal claim.
The bankruptcy court sustained the objection, holding that neither Rule 3002(c) of the Federal
Rules of Bankruptcy Procedure nor case law provided the court with the discretion to extend the
bar date.

The BAP affirmed the bankruptcy court's decision, agreeing that in a chapter 7 case, the
bankruptcy court has no discretion to extend the bar date, and holding that the ground of
excusable neglect is only available in a chapter 11 case. In a rather interesting comment, the
BAP held that counsel had not established that he was unable to file the claim on Jan. 18, 1994
because the clerk's office was closed or inaccessible because of the earthquake, only that he
could not enter his office. Further, the BAP concluded that telephone calls to the trustee do not
constitute an "informal" proof of claim. The BAP's examination of applicable law explains the
result.

<h3>Allowance of Claims</h3>

The allowance of claims is generally governed by <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §502(a)</a>, which states that a
claim filed under §501 is deemed allowed unless there is an objection.<a href="#3" name="3a">3</a> Section 502(b) of the
Bankruptcy Code<a href="#4" name="4a">4</a> sets forth the grounds for the disallowance of claims, including the
requirement in §502(b)(9) that claims must be timely filed. The rules governing the time for
the filing of claims in cases under chapters 7, 12 and 13 are set forth in Rule 3002(c), which
states that "a proof of claim is timely filed if it is filed not later than 90 days after the first
date set for the meeting of creditors called under §341(a) of the Code..." Rule 3002(c).<a href="#5" name="5a">5</a>

In a chapter 11 (or a chapter 9) case, the filing of proofs of claim is governed by Rule
3003(c)(3), which provides for the bankruptcy court to fix the time within which proofs of
claim or interest may be filed.

<h3>Exceptions to the Rules Governing the Timely Filing of Claims</h3>

Rule 3002(c) (applicable in cases under chapters 7, 12 and 13) sets forth five exceptions
to the rule that proofs of claim be filed within 90 days of the first date set for the §341(a)
meeting of creditors. They are:

<ul>
<li>Governmental units may file within 180 days after the date of the order for relief and such
period may be extended for cause.
</li><li>The court may extend the time for filing by infants or incompetent persons or their
representatives if such an extension serves the interest of justice and will not unduly delay
the administration of the case.
</li><li>An unsecured claim arising as a result of a judgment in favor of the bankruptcy estate for
money or property, or denying or avoiding an interest in property, such as a judgment
requiring a party to turn over property to the trustee or the avoidance of a security interest
that results in the losing party having an unsecured claim, may be filed within 30 days after
the judgment becomes final.
</li><li>A claim arising from the rejection of an executory contract or unexpired lease of the
bankruptcy debtor may be filed within such time as the court may direct.
</li><li>If the clerk's office has mailed a notice of insufficient assets to pay a dividend to creditors,
and subsequently mails a notice of a possible dividend, claims may be filed within 90 days
after the mailing of such notice.
</li></ul>

Rule 3003(c)(3), which sets forth the rules governing the time for filing claims in chapter
11 cases, incorporates the exceptions found in Rule 3002(c)(2), (3) and (4) but generally
provides that the time may be extended "for cause shown." In addition to these exceptions, the
U.S. Supreme Court has held that the rather broad justification of "excusable neglect" found in
Rule 9006 may be grounds for the extension of the time limit and allowance of a late-filed
claim. <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… Investment Services Co. v. Brunswick Associates, 507 U.S. 380, 389, 113 S.Ct.
1489, 1495, 123 L.Ed.2d 74 (1993)</a>.

In the Edelman case, the creditor argued that enlargement of the time to file proofs of claim
was authorized by Rule 9006. However, citing <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… Inc. v. Forsch (In re Coastal Alaska Lines
Inc.), 920 F.2d 1428 (9th Cir. 1990)</a>, the BAP concluded that the language of Rule
9006(b)(3) does not permit the expansion of the time limits contained in Rule 3002(c). Rule
9006(b)(3) states, under the heading "Enlargement Limited," as follows:

<blockquote>
The court may enlarge the time for taking action under Rules 
1006(b)(2), 1017(e), 3002(c), 4003(b), 4003(b), 4004(a), 4007(c), 8002 and
9033 only to the extent and under the conditions stated in those rules.
</blockquote>
Bankruptcy Rule 9006(b)(3) (emphasis added). Thus, since there are only five exceptions set
forth in Rule 3002(c), the bankruptcy court is without authority to enlarge the time for filing
under any other conditions, including earthquakes.

<hr>
<big><center>
...while courts may be very generous in allowing late-filed claims or
extending the bar date in chapter 11 cases, they lack the discretion
to do so in chapter 7 and 13 cases...
</center></big>
<hr>
</blockquote></blockquote>

The creditor then argued that the bankruptcy court's equitable powers under §105(a)
permitted the allowance of the claim. The BAP determined that the Ninth Circuit in Coastal
Alaska had already considered this issue and concluded that, based upon the express language of
Rule 9006(b)(3), the equitable powers granted to the bankruptcy court by §105 do not accord
discretion to enlarge the time for filing a proof of claim unless one of the situations listed in
Rule 3002(c) exists. Edelman at 151, citing Coastal Alaska at 1432-33.

<h3>Chapter 11—A More Generous Standard</h3>

Mr. Edelman's creditor next cited Pioneer as a basis for enlargement of the time to file claims.
The BAP correctly pointed out that while the Supreme Court in Pioneer had recognized the
concept of prevention by Act of God, it had done so in the context of determining what constituted
excusable neglect. Further, the Supreme Court in Pioneer expressly stated that "The 'excusable
neglect' standard of Rule 9006(b)(1) governs the late filing of proofs of claim in chapter 11
cases, but not Chapter 7 cases." <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; 507 U.S. at 388</a> (emphasis added), explaining, in
Footnote 4,

Subsections (b)(2) and (b)(3) of Rule 9006 enumerate those time requirements
excluded from the operation of the "excusable neglect" standard. One of the time
requirements listed as excepted in Rule 9006(b)(3) is that governing the filing of
proofs of claim in chapter 7 cases. Such filings are governed exclusively by Rule
3002(c) [citations omitted]. By contrast, Rule 9006(b) does not make a similar
exception for Rule 3003(c), which, as noted earlier, establishes the time requirements
for proofs of claim in chapter 11 cases. Consequently, Rule 9006(b)(1) must be
construed to govern the permissibility of late filings in chapter 11 bankruptcies.

The Supreme Court reasoned that the difference between the rules was justified because of the
differing policies of the two chapters; chapter 11 provides for reorganization with the aim of
rehabilitating the debtor and avoiding forfeitures by creditors, whereas the aim of chapter 7
liquidation is the prompt closure and distribution of the debtor's estate. <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; 507 U.S. at 388</a>. Consequently, Pioneer did not apply.

<h3>Informal Claim</h3>

The creditor's final argument was that he had filed an informal claim during the course of
the chapter 11 case, based on his numerous conversations with the U.S. Trustee's office. The
BAP held that, based upon well-established law in the Ninth Circuit regarding informal proofs
of claim, such conversations did not constitute an informal proof of claim. The Ninth Circuit has
held that, "For a document to constitute an informal proof of claim, it must state an explicit
demand showing the nature and amount of the claim against the estate, and evidence an intent to
hold the debtor liable." <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… Industries Inc. v. Lafayette Metals Inc. (In re
Anderson-Walker Industries Inc.), 798 F.2d 1285 (9th Cir. 1986)</a> (letter from a creditor to
the chapter 7 trustee's counsel prior to the bar date requesting payment from the estate at the
time of distribution held to constitute informal proof of claim). See, also, <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… of Napa v.
Franciscan Vineyards Inc. (In re Franciscan Vineyards), 597 F.2d 181, 182 (9th Cir. 1979)

(per curiam), cert. denied, 445 U.S. 915, 100 S.Ct. 1274</a>, 63 L.3d.2d 598 (1980) (county
sent letter to trustee prior to bar date enclosing tax bills and requesting payment).

Thus, the BAP said, while a creditor (in the Ninth Circuit) need not show that its informal
proof of claim was filed with the bankruptcy court, the creditor must establish (1)
presentment in writing, (2) within the time for filing of claims, (3) by or on behalf of the
creditor, (4) bringing it to the attention of the court and (5) the nature and amount of a claim
asserted against the estate. Edelman at 154-5. See, also, <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… v. Holm (In re Holm), 931
F.2d 620 (9th Cir. 1991)</a>.

As liberal as the Ninth Circuit is regarding informal claims, the BAP in Edelman noted that
the creditor did not contend that any document concerning the claim was ever delivered to anyone
connected to the chapter 11 or chapter 7 case, and rejected the creditor's argument that its
counsel's numerous telephone calls to the trustee while the case was a chapter 11 case were
sufficient to constitute an informal proof of claim. See, also, <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Vocola, 234 B.R. 239
(Bankr. D. R.I. 1999)</a>.

However, other jurisdictions have held that an informal claim must have been filed with the
court such that merely a letter written to a representative of the estate such as the trustee or
debtor, as in Anderson-Walker and Franciscan Vineyards, would not suffice. In these cases, a
timely written assertion or pleading, sufficient to apprise the court of the existence, nature and
amount of the claim as well as evidence of an intent on the part of the claimant to hold the debtor
liable for that claim, is required. See <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Benjamin Coal Co., 978 F.2d 823 (3rd Cir. 1992)</a>.
<a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… Assoc. Inc. v. South Atl. Fin. Corp. (In re South Atl. Fin. Corp.), 767 F.2d 814,
819 (11th Cir. 1995), cert. denied, 475 U.S. 1015, 106 S.Ct. 1197 89 L.Ed. 311 (1986)</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…
re Penn State Clothing Corp., 205 B.R. 62 64-65 (Bankr. E.D. Pa. 1997)</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re L. Meyer & Son Seafood Corp., 188 B.R. 315, 319-320</a>. In addition, the writing must have been filed with
the court prior to the bar date. <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Cole, 189 B.R. 40, 51 (Bankr. S.D.N.Y. 1995)</a>.<a href="#6" name="6a">6</a>

Writings in various forms have been determined to constitute informal proofs of claim. See
<a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re L. Meyer & Son Seafood Corp., 188 B.R. 315 (Bankr. S.D. Fla. 1995)</a> (claims were filed
with an assignee for the benefit of creditors who provided them to the trustee in bankruptcy
after an involuntary petition was filed against the debtor); <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Penn State Clothing Corp., 205
B.R. 62 (Bankr. E.D. Pa. 1997)</a> (fee applications filed by professionals employed in the chapter
11 case were viewed as timely filed claims upon conversion to a chapter 7 case); <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Graham
Mortgage Investors, 15 B.R. 284 (Bankr. M.D. Fla. 1986)</a> (motion for relief from stay
provided sufficient information to be an informal proof of claim); <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… v. Holm (In re Holm), 931 F.2d 620 (9th Cir. 1991)</a> (disclosure statement filed in chapter 11 case met
requirements for an informal proof of claim.)

<h3>Impossibility</h3>

Interestingly, the BAP left open the issue of whether the bankruptcy court has the discretion
to enlarge the time for filing claims in chapter 7 cases due to "impossibility." The Ninth
Circuit has not addressed this issue yet. The BAP stated, "One can certainly conceive of
extraordinarily compelling circumstances where, due to death, hospitalization for serious
illness such as a coma, war, natural disaster, or the like, it would be truly impossible for a
creditor to file its claim on a timely basis." Edelman at 152, (emphasis added).

However, the BAP continued, Mr. Edelman's creditor had not demonstrated that it had been
impossible to file the claim due to the earthquake. Counsel had not contended that either he or his
client had been injured or disabled, or that the court had been closed or inaccessible. Although
the creditor's counsel had been unable to enter his office building, counsel had not explained how
or why he had been prevented from going to the bankruptcy court and filing a "piece of paper"
indicating the claim. Therefore, the "creditor has not demonstrated that the disruption caused
by the earthquake did in fact prevent him from filing a claim by Jan. 18 or during the 89
preceding days." Edelman at 152.<a href="#7" name="7a">7</a>

<h3>Conclusion</h3>

In summary, the time for filing proofs of claim in cases under chapters 7, 12 and 13 is
governed by Rule 3002(c); in chapter 9 and 11 cases, Rule 3003(c) establishes those time
limits. Not only does Rule 3003(c)(3) specifically allow the bankruptcy court to extend the
time "for cause shown," but Rule 9006(b) permits the court to enlarge most of the time limits
provided for in the Bankruptcy Rules, but not the time limit established by Rule 3002(c). That
rule is subject to Rule 9006(b)(3), which limits the enlargement of the Rules specified
therein "only to the extent and under the conditions stated in those rules." Most of the courts
that have considered this distinction have found that while courts may be very generous in
allowing late-filed claims or extending the bar date in chapter 11 cases, they lack the discretion
to do so in chapter 7 and 13 cases, even where circumstances might seem to justify extending
the time.

The lesson to be learned—aside from the obvious ones of not waiting until the last day to file a
proof of claim and keeping an up-to-date calendar with you at all times—is that an Act of God
may not be considered excusable neglect justifying tardiness in filing; however, if it makes
timeliness truly impossible, it may justify an extension of time.

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> Ms. Weil is of counsel to Andrews & Kurth L.L.P. in its Los Angeles office. Mr. Horowitz is a shareholder in the Los Angeles firm of Clark & Trevethick P.C. <a href="#1a">Return to article</a>

<a name="2">2</a> The Edelman case originally had been filed as a chapter 11 case on Oct. 5, 1992, and was converted to a chapter 7 case on July 29, 1993. <a href="#2a">Return to article</a>

<a name="3">3</a> In a chapter 11 case, §1111(a) deems filed any claim appearing in the schedules filed by the debtor except a claim scheduled as disputed, contingent or unliquidated. <a href="#3a">Return to article</a>

<a name="4">4</a> References to "Section ___" are references to the <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… Code, 11 U.S.C. §101</a> et seq. <a href="#4a">Return to article</a>

<a name="5">5</a> Hereafter, references to the Federal Rules of Bankruptcy Procedure shall be designated as "Rule ____" or "Bankruptcy Rule ____." <a href="#5a">Return to article</a>

<a name="6">6</a> Once the court makes a determination that a timely "informal" claim has been filed, a properly filed formal proof of claim is to be treated as an amended claim to
the informal claim. <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… Farms Inc. v. Bultman (In re Roberts Farms Inc.), 980 F.2d 1248 (9th Cir. 1992)</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… of Hawaii Inc. v. Shakey's Inc. (In re Pizza of
Hawaii Inc.), 761 F.2d 1374 (9th Cir. 1985)</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Gourley, 235 B.R. 626 (Bankr. W.D. Tenn. 1999)</a>. <a href="#6a">Return to article</a>

<a name="7">7</a> The authors, who are married, live approximately three miles from the epicenter of the Northridge Earthquake and have some personal knowledge of the
disruption it caused. However, the Edelman opinion states no facts, such as the location of the office building or whether the court had been closed, that
would allow the reader to ascertain how much interference with the attorney's ability to file a claim had actually been caused by the earthquake. <a href="#7a">Return to article</a>

<hr>

Journal Authors

Diane C. Weil

Journal Date

Wednesday, December 1, 1999 - 12:00