MEMORANDUM OF OPINION AND ORDER
Before the Court is the Virginia Employment Commission’s (“VEC”) Motion for Leave to File Late Proof of Claim (“VEC Motion”). The trustee of the Omega Liquidating Trust (the “Trustee”) has filed an opposition to the VEC Motion (“Trustee’s Opposition”).
The Court acquires core matter jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a), (b) and 1334(b). Upon a duly noticed hearing, the following factual findings and conclusions of law are hereby rendered:
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The Debtors
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provided internet protocol, voice and data services to business and
On January 8, 2004, this Court entered an order setting June 7, 2004 as the deadline for governmental units, such as the VEC, to file claims against the Debtors (the “Bar Date”). The VEC admits that it received notice of the Bar Date. On August 8, 2005, the VEC filed a motion seeking authorization to file a late proof of claim for unemployment insurance taxes in the amount of $428,442.21 allegedly overdue from Digital Island, Inc. (“Digital”), now a wholly owned subsidiary of the Debtors.
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Prior to July 2001, Digital and the Debtors were distinct employers operating in the Commonwealth of Virginia. Both were registered with the Virginia Employment Commission (“VEC”), the entity responsible for administering unemployment insurance in Virginia pursuant to the Social Security Act of 1935. In July 2001, Digital was acquired by the Debtors, and was renamed Cable & Wireless Internet Services, Inc. (“CWIS”). Subsequent to the acquisition by the Debtors, CWIS continued to file quarterly reports with the VEC under the account number originally assigned to Digital.
The VEC argues that it was unaware that Digital was a subsidiary of the Debtors until June 2005, and therefore had no reason to file a proof of claim prior to the Bar Date. The VEC also argues that, because of the large number of employers in the Commonwealth of Virginia, account numbers are the only way to identify each employer. The VEC also notes that on June 26, 2002, after being acquired by the Debtors, Digital sent a letter to the VEC on its own letterhead informing the VEC of the acquisition of a separate company, Exodus Communications, Inc. (“Exodus”). 2 Further, a change of address letter from the Debtors on November 4, 2003, referenced only the account number of Cable & Wireless USA (“CWUSA”), and did not mention Digital. 3 The VEC argues that because it did not have any knowledge that the account numbers of Digital and the Debtors were related, and because the Debtors did not owe any unemployment insurance taxes at the time it received notice of the bankruptcy case, it had no reason to file a proof of claim in the Debtors’ case.
The Trustee responds that the VEC knew, or should have known, of the relationship between Digital and the Debtors, and therefore its failure to file a timely proof of claim was not the result of excusable neglect. Initially, the Trustee looks to the employer’s quarterly tax reports filed by CWIS (formerly Digital) after being acquired by the Debtors (collectively, the
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Federal Rule of Bankruptcy Procedure 9006(b) provides that a bankruptcy court “for cause shown may at any time in its discretion” grant an enlargement of time to act “where the failure to act was the result of excusable neglect.” Fed. R. BankrP. 9006(b)(1). “The ‘excusable neglect’ standard of Rule 9006(b)(1) governs late filings of proofs of claim in Chapter 11 cases.”
Pioneer Inv. Services Co. v. Brunswick Associates Ltd. Partnership,
In Pioneer, the United States Supreme Court enumerated four factors for evaluating when neglect is excusable:
(1) danger of prejudice to the debtor;
(2) the length of the delay and the resulting potential impact on judicial proceedings;
(3) the reason for the delay, including whether the delay was within the reasonable control of movant; and
(4) whether the movant acted in good faith
Pioneer,
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The Court is guided by the
Pioneer
factors to determine whether the VEC’s failure to file a claim was due to excusable neglect.
See, e.g., In re O'Brien Environ
1. Danger of Prejudice to the Debtors
The VEC, as the party seeking to file a late claim, carries the burden of proving a lack of prejudice to the Debtor.
See In re KMart,
whether the debtor was surprised or caught unaware by the assertion of a claim that it had not anticipated;
whether the payment of the claim would force the return of amounts already paid out under the confirmed Plan or affect the distribution to creditors;
whether payment of the claim would jeopardize the success of the debtor’s reorganization;
whether allowance of the claim would adversely impact the debtor actually or legally; and
whether allowance of the claim would open the floodgates to other future claims.
In re Inacom Corp.,
The Trustee argues that the Debtors will be prejudiced by the late filed claim of the VEC for two reasons. First, the Court has approved a reserve to be set aside for all known claims. This reserve was established without knowledge of the taxes due to the VEC. Second, the Trustee asserted at oral argument that any information that would be available to verify the Debtors’ tax liability, including any relevant persons, papers, and computer files, is now unavailable. The VEC has provided no evidence to refute either of these contentions.
The fact that the VEC’s claim may reduce the funds available to unsecured creditors does not, by itself, establish prejudice to the Debtors.
In re O’Brien,
Further, the asserted loss of evidence would prejudice the Debtors, who would no longer have the ability to challenge the amount or the validity of the VEC’s claim.
E.g., In re O’Brien,
Other factors counsel against prejudice to the Debtors. The Debtors could have anticipated that it would need to pay overdue taxes, as it possessed the tax records to be aware of Digital’s delinquency. The VEC asserts that substantial amounts remain available to pay its claim, if allowed. Further, since the Debtors’ plan is a liquidating plan, allowance of the VEC claim would have no effect on the Debtors’ ability to successfully complete their plan.
See In re Sacred Heart Hosp. of Norristown,
After consideration of all of the relevant circumstances, however, the VEC has failed to show by a preponderance of the evidence that the Debtor would not be prejudiced by the filing of a late claim.
The VEC’s delay is substantial, as the request to file a late proof of claim comes over one year after the original governmental claims bar date, and over two years after the due date for the overdue taxes.
In re O’Brien,
3. Reason for the Delay
The third Pioneer factor is the reason for the delay, including whether the delay was within the reasonable control of the movant. The Trustee cites numerous documents which could have given the VEC notice of Digital’s acquisition by CWUSA. The VEC argues that because of the high volumes of accounts and correspondence that it must process, its systems are designed to look only for the account number referenced on the Tax Reports. The VEC, however, was in the best position to control its own procedures in determining the time limits for submitting a proof of claim. This argument does not absolve the VEC of the consequences of failing to adhere to the bar date.
A bar date notice will not contain the account numbers of the debtor or any of the entities of the debtors. In this case, the Bar Date Notice set forth the June 7, 2004 deadline for filing a claim, and also stated that Digital was a name formerly used by the Debtors. There is no dispute that the VEC received service of the Bar Date Notice, or that the Bar date was unambiguous.
See In re Orthopedic Bone Screw Products Liability Litigation,
The VEC, however, argues that since C & W did not owe unemployment taxes, it believed that no further action was necessary. The VEC surely is aware that debtors will often consist of numerous entities containing various names or trade names. The Debtors’ bar date notice expressly states that Digital was another name used by CWIS. The VEC cannot argue persuasively that because it receives a high volume of customers, it is excused from disregarding the contents of the Bar Date Notice.
See In re Walker,
The Trustee also notes that although the late payments were due in April of 2003, the VEC did not separately demand payment from Digital. This fact undercuts the VEC’s contention that its failure to file a claim was due solely to a lack of knowledge that Digital had been acquired by the Debtors.
The reason for the delay weighs against a finding of excusable neglect, as the VEC 1) received timely notice of the Bar Date, 2) was in possession of other information that could have informed it of the acquisition of Digital by the Debtors, 3) and nonetheless failed to file a proof of claim until one year after the Bar Date.
4. Good Faith of the VEC
The Trustee has made no specific allegation that the VEC is acting in bad faith, nor is there reason to believe that this motion was motivated by an improper purpose.
See In re Spring Ford Industries, Inc.,
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After reviewing the Pioneer factors, the Court finds that there would be prejudice to the Debtors, the length of delay is substantial, and the reason for the delay was within the reasonable control of the VEC. There is no evidence of bad faith of the VEC. For the foregoing reasons, the totality of the circumstances persuade the Court, that the VEC’s failure to file a timely proof of claim was not due to excusable neglect.
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Accordingly, the VEC’s motion to file a late proof of claim is not well premised and is hereby DENIED. The Trustee’s Oppo
IT IS SO ORDERED.
Notes
. The Debtors consist of the following entities: Cable & Wireless USA, Inc., Cable & Wireless USA of Virginia, Inc., Cable & Wireless Internet Services, Inc., Exodus Communications Real Property I, LLC, Exodus Communications Real Property Managers I, LLC, and Exodus Communications Real Property I, LP (collectively, the "Debtors”).
. Exhibit C to VEC Motion.
. Exhibit F to VEC Motion.
. Exhibits A-E to Trustee's Opposition.
. Bar Date Notice, Exhibit F to Trustee's Opposition, at 1 n.4.