Creditors Barred from Asserting $ 53 Million Claim: A Look at the Excusable Negligence Standard | Patterson Belknap Webb & Tyler LLP

Another case shows the dangers of waiting until the last minutes to meet a legal deadline. In re U-Haul, 21-bk-20140, 2021 Bankr LEXIS 3373 (Bankr. SDW Va. December 10, 2021).

The debtor is a well-known truck rental company. Years before the debtor filed for bankruptcy, a class action lawsuit was filed against him. The lawsuit alleged that the debtor improperly invoiced certain environmental costs and claimed damages totaling $ 53 million.

In June 2021, the debtor filed a Chapter 11 claim. The deadline or deadline for creditors to file proof of claim was August 25 at 11:59 p.m. ET. Claims can be filed in person, by mail or through the CM / ECF electronic filing system of the bankruptcy court. And the court made it clear that the claims had to be received before the deadline was set for August 26, otherwise the claims would be “”forever banned. “

Class Claimants’ counsel chose to file two claims on the CM / ECF system. But the lawyer waited to file the case until the evening of August 25. Everything did not go as planned. The person filing the claims did not realize that he did not have the correct login credentials for the court. And by then it was too late for him to ask anyone at the court office for help. As a result, he was unable to file the complaints at 11:59 p.m.

As a backup, the attorney emailed the claims to all attorneys one hour and 26 minutes after midnight on August 26. Then, after the lawyer obtained the appropriate filing vouchers that morning, the claims were filed on the CM / ECF system at nine hours and 45 minutes. late. Counsel for the debtor opposed the filing, arguing that the claims should be forever statute-barred because they were filed after the August 25 deadline.

The filing of proofs of claim is governed by Federal Bankruptcy Rule 3003. Courts can extend a creditor’s time to file a “proven cause” claim. Rule 3003 (c). Under Rule 9006 (b) (1), courts will allow creditors to file claims beyond the time limit in “excusable negligence” cases.

The flagship and well-known case on “excusable negligence” is Pioneer Inv. Serves. vs. Brunswick Assocs. Ltd P’ship, 507 US 380 (1993). In this case, the Supreme Court declared that “[a]While inadvertence, ignorance of the rules, or misinterpretation of the rules do not generally constitute “excusable negligence”, it is clear that “excusable negligence”. . . is a somewhat “elastic” concept and is not strictly limited to omissions caused by circumstances beyond the control of the mobile. Identifier. at 392. The Court also emphasized that any negligence must be “excusable”. This forces the courts to take into consideration:

1. the damage suffered by the debtor,
2. the length of the deadlines and the impact on legal proceedings,
3. the reason for the delay and whether it was under the mover’s control or not, and
4. if the author has acted in good faith.[MW1]

Counsel for the class plaintiffs argued that they met the standard of excusable negligence. They argued that the court should excuse the late filing because (1) the debtor was not harmed by the late filing, (2) the dismissal of the $ 53 million claims would be unfair to the class plaintiffs, ( 3) the inability of the lawyer to file on the CM / ECF system was not under their control, and (4) the lawyer had tried to file the requests in good faith.[MW2]

The bankruptcy court disagreed. “The reason for the delay in filing was entirely within the control of the Ferrell Group lawyers. . . . [T]The Ferrell class was given ample notice of the blackout date as well as the dire consequences that would result from failing to meet the deadline. In addition, the group had over a month to draft its complaint and had three options for filing it. “The lawyer knowingly assumed significant risk to the status of the claim while waiting for the literal last minute to file it. »2021 Banker. LEXIS, at * 19.

Because the delay in filing was caused only by class counsel and not by “technical difficulties” with the electronic filing system, the court ruled that class counsel could not meet the standard of excusable negligence. The court briefly noted that the other Pioneer factors also favored the debtor. As a result, the Ferrell class was “forever barred” from asserting the $ 53 million claim.