496 B.R. 697
Bankr. E.D.N.Y.2013Background
- Debtors Marvin and Robin Jemal filed Chapter 7 on December 28, 2011; the claims bar date was May 21, 2012. BNY Mellon (successor to Bank of New York) was not listed on the original schedules. Debtors amended Schedule F on October 10, 2012 to add BNY’s $1.3M unsecured claim.
- BNY asserts a 2003 promissory note secured by a mortgage on 119 Spier Avenue; its note was assigned to BNY in 2010. State foreclosure litigation with co-creditor Metropolitan and IDB occurred prepetition.
- BNY did not learn of the bankruptcy until July 2012 (after the bar date). It attempted to reach consensual resolutions (stipulations exchanged with debtor’s counsel and trustee’s counsel) before filing the instant motion on February 11, 2013 to extend time to file a proof of claim (and to obtain distribution parity).
- Objectors (IDB, the trustee, and the debtors) acknowledged BNY lacked notice but opposed relief largely on prejudice and laches grounds, arguing BNY waited ~7 months after learning of the case and could disrupt near-settlement distributions.
- The court held that Bankruptcy Rule 9006(b)(3) does not permit extension of the Rule 3002 bar date here, but that § 726(a)(2)(C) governs tardy claims in Chapter 7 and entitles a no-notice creditor to distribution with timely claims if (i) it lacked notice and (ii) it files in time to permit payment.
- The court found both statutory § 726(a)(2)(C) requirements satisfied (BNY lacked notice and no distribution has been made), rejected applying laches to defeat § 726(a)(2)(C) rights, and granted relief: BNY may receive distribution with timely claims provided it files a proof of claim in time to permit payment.
Issues
| Issue | Plaintiff's Argument (BNY) | Defendant's Argument (Debtors/IDB/Trustee) | Held |
|---|---|---|---|
| Whether court can extend Rule 3002 bar date under Rule 9006(b)(3) | BNY sought extension because it lacked notice | Objectors opposed; argued delay prejudiced settlements | Court: No — Rule 9006(b)(3) forbids equitable enlargement; extension under rule unavailable |
| Whether a tardy no-notice claim is entitled to distribution with timely claims under § 726(a)(2)(C) | BNY: lacked notice and should be treated as a no-notice creditor under § 726(a)(2)(C) | Objectors conceded lack of notice but argued other equitable defenses should bar relief | Court: Yes — statutory § 726(a)(2)(C) applies and entitles BNY to parity if it files in time to permit payment |
| Whether laches or equitable defenses can bar § 726(a)(2)(C) relief | BNY: delay was reasonable because it sought consensual resolution | Objectors: BNY’s ~7-month delay prejudiced settlement expectations and should be barred by laches | Court: No — laches may not override an express statutory scheme in Chapter 7; even if laches applied, facts do not warrant denial |
| Condition to receive distribution | N/A (statutory condition) | Objectors: urge strict timing or stipulation deadlines | Court: BNY must still file a proof of claim "in time to permit payment" to obtain distribution pursuant to § 726(a)(2)(C) |
Key Cases Cited
- Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380 (1993) (Rule 9006(b)(1) excusable neglect standard applies in Chapter 11 but not Chapter 7 claim allowance)
- Ivani Contracting Corp. v. City of New York, 103 F.3d 257 (2d Cir. 1997) (laches requires unreasonable delay plus prejudice; cannot bar timely statutory claims)
- In re Bell, 225 F.3d 203 (2d Cir. 2000) (limits on court’s equitable authority to enlarge time under Rule 9006(b)(3))
- Zidell v. Forsch (In re Alaska Coastal Lines, Inc.), 920 F.2d 1428 (9th Cir. 1990) (discussing Rule 9006(b) limits on equitable enlargement)
- United States v. Mack, 295 U.S. 480 (1935) (laches cannot defeat a federal statutory claim filed within a statutory limitations period)
- United States v. Cardinal Mine Supply, Inc., 916 F.2d 1087 (6th Cir. 1990) (no-notice creditor must be permitted to file tardily if done promptly after learning of the bankruptcy; discussed due process in priority-claim context)
- United States v. Whiting Pools, Inc., 462 U.S. 198 (1983) (distinguishes Chapter 7 liquidation objectives from Chapter 11 reorganizational goals)
- NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984) (recognizes broad equitable powers in Chapter 11 reorganization context)