476 B.R. 812
Bankr. S.D.N.Y.2012Background
- Eight months after the General Bar Date, Gift Card Holders sought leave to file untimely proofs of claim and asked for class certification; they argued lack of notice due to being known creditors.
- Bar Date Order set General Bar Date of June 1, 2011 and required notice by mail to known creditors and publication in The New York Times; Debtors published Bar Date Notice and posted on the Borders website.
- Gift Card program existed since 1998; after liquidation, gift cards remained outstanding with approximately $210.5 million in balances as of 2011; trust held about $110 million in cash and distributions totaled at least $17 million to admin/priority claims.
- Debtors’ databases did not contain purchaser contact info; gift cards could only be traced via multiple databases that could not reliably identify holders.
- Court denied untimely claims and mootness of class motion because holders were unknown creditors entitled only to constructive notice; plan had substantially consummated, limiting modification options.
- Judge concluded that publication notice sufficed for unknown creditors and that excusable neglect was not shown; class certification denied as moot.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Gift Card Holders known creditors entitled to actual notice? | Beeman, Freij, Traktman claim they were known creditors. | Holders were unknown creditors; no link between data and gift-card ownership. | No; holders were unknown creditors and owed constructive notice only. |
| Did publication notice suffice for unknown creditors? | Publication failed to reach known creditors. | Publication plus website link provided adequate notice to unknown creditors. | Sufficient; unknown creditors received constructive notice via publication. |
| Was there excusable neglect to file late claims? | Failure to notice excuses delay. | Delay seven+ months after bar date; lack of control over notice; no excusable neglect. | Not excusable neglect; motion denied. |
| Should class certification be granted given denial of late claims? | Certification warranted to pursue all gift-card holders. | No standing and moot since late-claim relief denied. | Class motion denied as moot. |
Key Cases Cited
- Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (U.S. 1950) (due process notice must be reasonably calculated to apprise)
- In re XO Commc’ns, Inc., 301 B.R. 782 (Bankr.S.D.N.Y. 2003) (unknown creditors receive constructive notice)
- In re Drexel Burnham Lambert Grp., Inc., 151 B.R. 674 (Bankr.S.D.N.Y. 1993) (adequacy of notice for known vs unknown creditors)
- Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380 (U.S. 1993) (four-factor excusable neglect test)
- In re Lehman Bros. Holdings Inc., 433 B.R. 113 (Bankr.S.D.N.Y. 2010) (hard-line application of Pioneer factors; focus on delay reason)
- In re Brooks Fashion Stores, Inc., 124 B.R. 436 (Bankr.S.D.N.Y. 1991) (bar date notice and identification of potential creditors)
- Sosna v. Iowa, 419 U.S. 393 (U.S. 1975) (necessity of a case or controversy for class actions)