OPINION GRANTING REORGANIZED DEBTORS’ OBJECTION TO STANDARD BANK LONDON, LIMITED’S AMENDED PROOF OF CLAIM NO. 24626
The issues before the Court are (1) whether Standard Bank London, Limited (“Standard”) may amend its proof of claim (“Claim 13075”) against Enron North America Corp. (“ENA”) by an amended proof of claim (“Claim 24626”) to include a specific claim against Enron Corp. (“Enron”) for a guaranty that Enron executed, or, in the alternative, (2) whether Standard may file a late proof of claim against Enron, under a guaranty agreement, based on “excusable neglect.” Upon consideration of the pleadings and arguments of the parties, the Court finds that Standard may not amend Claim 13075 to assert a claim against Enron. Further, the Court finds that Standard may not file a late proof of claim based on “excusable neglect.”
I. Jurisdiction
The Court has subject matter jurisdiction over this matter under sections 1334(b) and 157(a) of title 28 of the United States Code and under the July 10, 1984 “Standing Order of Referral of Cases to Bankruptcy Judges” of the United States District Court for the Southern District of New York. This is a core proceeding within the meaning of section 157(b)(2) of title 28 of the United States Code.
II. Background
A. General Procedural History
Commencing December 2, 2001 (the “Petition Date”), Enron, ENA and certain of Enron’s direct and indirect subsidiaries (collectively, the “Debtors” or “Debtor,” referencing a single entity) each filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). The Debtors’ chapter 11 cases were procedurally consolidated for administrative purposes. During the chapter 11 cases, the Debtors operated their businesses and managed their properties as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. On July 15, 2004, the Court entered an order confirming the Debtors’ Supplemental Modified Fifth Amended Joint Plan of Affiliated Debtors (the “Plan”) in these
The Debtors filed “Motion of the Debtors for an Order Pursuant to Bankruptcy Rules 2002(a)(7), 2002(Z), and 3003(c)(3) Establishing Deadlines for Filing Proofs of Claim and Approving the Form and Manner of Providing Notice Thereof’ on July 31, 2002 (the “Bar Date Notice Request”). The Bar Date Notice Request provided the following provision: “To avoid confusion and facilitate the Claims reconciliation process, the Debtors request that all creditors ... be required to file separate Proofs of Claim with respect to each alleged claim and against each Debtor.” By order dated August 1, 2002 (the “Bar Date Order”), the Court set October 15, 2002, as the bar date (the “Bar Date”) by which proofs of claim must be filed against certain Debtors and approved the Bar Date Notice Request “in all respects.” The Bar Date Order further provided that any creditor who fails to file a proof of claim in accordance with the Bar Date Order by October 15, 2002, “shall be forever barred, estopped and enjoined from asserting such claim against such Debtor (or filing a proof of claim with respect thereto).... ” On August 10, 2002, the Debtors mailed, inter alia, the notice of the Bar Date to potential creditors of the Debtors, including Standard (the “Bar Date Notice”).
B. Standard’s Claim, 13075
Prior to the petition date, Standard engaged in energy trading transactions with
ENA. On September 25, 2000, Standard and ENA entered into a contract regarding swap transactions (the “Agreement”), pursuant to which Enron executed a guaranty (the “Guaranty”) promising to “guarantee[ ] the timely payment when due of the obligations of’ ENA. After ENA filed a Chapter 11 case on December 2, 2001, Standard timely filed Claim 13075 against ENA, asserting a claim in the amount of “not less than $2,040,630.71” allegedly owed to Standard “under Swap Transaction ENA Contract No. NG1183.1 and the Revised Confirmation, Annex A, Annex B, and Annex B-l.... ” Annex B-l was an executed copy of the Guaranty, which Standard attached to Claim 13075. Standard, however, failed to file a separate proof of claim against Enron based on the Guaranty.
Standard asserts that when it sought to sell its swap transaction claims under the Agreement, it realized that it needed to file a separate proof of claim against Enron with regard to the Guaranty claim. Thereafter, Standard filed Claim 24626 against Enron on February 9, 2004. As previously referenced, Standard labeled Claim 24626 as an amended claim to Claim 13075. 1
On July 29, 2004, Enron filed its thirty-ninth omnibus objection. In its objection, Enron sought to disallow and expunge Claim 13075 due to its duplicative nature with Claim 24625 and Claim 24626. Enron did not object to allowing Claim 24626 to remain on file at that time. In its objection, however, Enron stated
[tjhis Objection is limited to the grounds stated herein. Accordingly, it is without prejudice to the rights of the Debtors orany other party in interest to object to the proofs of claims affected hereby on any ground whatsoever, and the Debtors expressly reserve all further substantive and/or procedural objections they may have.
The Court granted Enron’s thirty-ninth omnibus objection on October 1, 2004.
On February 9, 2005, the Debtors filed an objection to Standard’s Claim 24626, arguing that it was filed substantially after the Bar Date. Standard, who is represented by Hughes Hubbard & Reed LLP (“HHR”), asserts that it “did not direct HHR not to file a claim against Enron, but mistakenly directed HHR to file the claim based upon the entire [Agreement], which included the claim under the Enron Guaranty, against ENA.” As such, Standard is claiming an inadvertent mistake on its part for not filing a timely proof of claim against Enron. Standard further contends that Claim 24626 should be allowed because Enron allowed a similar party, i.e. Kinder Morgan Interstate Gas Transmission, LLC (“Kinder Morgan”), to file a late claim when Kinder Morgan incorrectly filed its claim against ENA. Specifically, Kinder Morgan filed Claim 15271 against ENA on October 15, 2002. In its claim, Kinder Morgan stated
Kinder Morgan, Inc. (“KMI”) ... has an unsecured non-priority claim in the amount of $9,864,607 (plus all other fees, costs and applicable charges) against the referenced Debtor [i.e. Enron] as evidenced by Guaranty dated April 28, 2002 for transactions under ISDA Master Agreement dated April 28, 2002, between Enron North America Corp. and Kinder Morgan, Inc.
On May 20, 2004, Kinder Morgan and the Debtors entered into a Stipulation and Order Regarding Kinder Morgan, Inc.’s Motion to Allow Late Filed Claim or Alternatively, Motion for Leave to Amend Proof of Claim (the “Stipulation”). In the Stipulation, “[t]he Debtors and Kinder Morgan agree[d] that Proof of Claim No. 15271 should be deemed filed as against Enron .... ” Standard contends that its situation is similar to Kinder Morgan’s and that it should not be treated differently.
III. Discussion
A. Amendment of a Proof of Claim
1. General Standards for Permitting A Post-Bar Date Amendment to a Timely Filed Proof of Claim
Bankruptcy Rule 3003(c)(3) directs a bankruptcy court to establish a bar date beyond which proofs of claim are disallowed in a chapter 11 case. The bar date is critically important to the administration of a successful chapter 11 case for it is intended “to be a mechanism providing the debtor and its creditors with finality.”
Gulf States Exploration Co. v. Manville Forest Products Corp. (In re Manville Forest Products Corp.),
The bankruptcy judge has the discretion to grant or deny an amendment
2. Application of Rule 15(c) of The Federal Rules of Civil Procedure
As the Court discussed in
In re Enron Corp.,
[a]n amendment of a pleading relates back to the date of the original pleading when ... (2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, or (3) the amendment changes the party or naming of the party against whom a claim is asserted if the foregoing provision (2) is satisfied and, within the [120-day] period provided by Rule 4(m) for service of the summons and complaint, the party to be brought in by amendment (A) has received such notice of the institution of the action that the party will not be prejudiced in maintaining a defense on the merits, and (B) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against the party.
After the statute of limitations has run (here, the Bar Date), Rule 15(c)(2) is used for amending an original pleading (here, the proof of claim) to add a claim or defense, and Rule 15(c)(3) applies for adding a new party (here, Enron). Although Rule 15(e)(3) refers to changing a party and does not directly address adding a party, the Court and others have liberally construed the word “changes” to include adding a new party.
In re Enron Corp. (Midland),
Because Rule 15(c)(3) provides that the requirements of Rule 15(c)(2) must first be satisfied, the Court will, as in In re Enron Corp. (Midland), examine whether Standard can add the Guaranty claim and Enron as a debtor to Claim 13075 under the criteria of Rule 15(c)(3). However, the Court will not extend the analysis by analogy to Rule 15(c)(3)’s criteria that notice must be provided to the newly-named party within the Rule 4(m) period.
The party asserting the relation-back, here, Standard, bears the burden of proof.
Randall’s Island Family Golf Ctrs. v. Acushnet Co. (In re Randall’s Island Family Golf Ctrs.),
The first factor necessary to satisfy the first prong requires the claims asserted against the new party to comply with Rule 15(c)(2), in that they must arise “out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading.”
In re Enron Corp. (Midland),
The second factor of the first prong requires that the party to be brought in by the amendment receive adequate “notice”
The third factor necessary to satisfy the first prong with respect to the amendment to Claim 13075 requires Standard to show that Enron “knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against it.”
Id.
The Second Circuit has found that the “mistake” requirement “presupposes that in fact the reason for a [new defendant] not being named was a mistake in identity.”
Cornwell v. Robinson,
In the instant matter, Standard must show either factual mistake, such as misnaming or misidentifying a party it wished to sue, or legal mistake, such as misunderstanding the legal requirements of its cause of action, to establish the “mistake” under the third factor necessary to satisfy the first prong.
Thomas Rogers v. Sterling Foster & Co. (In re Sterling Foster & Co.)
Thus, as set forth in
In re Integrated Resources, Inc.,
Therefore, the Court finds that Standard has failed to establish that the balancing of the equities favors the relief sought. Therefore, the second prong of the two-prong test has not been established.
In addition, Standard’s reliance on
In re Hemingway Transp., Inc.,
Though the creditor in
Interco
was allowed to amend an informal proof of claim when it attached copies of guarantees by a co-debtor affiliate to a claim against one debtor arising out of a lease agreement, the court found that the creditor had evidenced an intention to share in the debtor’s assets.
Interco,
Standard alternatively argues that since the Debtors allowed Kinder Morgan to file a late claim against Enron, it should be allowed to do the same. Again, the Court disagrees. Although Kinder Morgan mistakenly filed a proof of claim against ENA based on an Enron guaranty, the body of Claim 15271 specifically ex
Furthermore, with respect to Standard’s argument that a ruling against Standard would be inconsistent with the resolution of Claim 15271, the Court notes that the Stipulation between the Debtor and Kinder Morgan is factually different from the instant matter because that Stipulation involved more than just a single proof of claim. 6 The Stipulation between Enron and Kinder Morgan involved both, claims of Kinder Morgan and claims of the affiliates of Kinder Morgan. Thus, no such inconsistency exists because of the factual differences between the instant matter and the Stipulation between Enron and Kinder Morgan, and disallowing Claim 24626 would not result in unfair treatment to Standard.
Thus, Standard’s remaining recourse for permitting the Guaranty claim is to establish its failure to timely file a proof of claim for the Guaranty against Enron was the result of “excusable neglect.”
B. Excusable Neglect
Bankruptcy Rule 9006(b)(1) provides that a bankruptcy court in its discretion may accept a late-filed proof of claim where a claimant establishes “excusable neglect.” The burden is on the claimant to prove that he or she did not timely file the claim because of “excusable neglect.”
In re Andover Togs, Inc.
The seminal case interpreting the “excusable neglect” language of Bankruptcy Rule 9006(b)(1) is
Pioneer Inv. Servs. Co. v. Brunswick Associates L.P.,
The relative weight, however, to be accorded to the factors identified in
Pioneer
requires recognizing that not all factors need to favor the moving party.
See Keene,
Affirming
In re Enron Corp. (Midland),
the Second Circuit has clarified its position on
Pioneer’s
four equitable factors noting that it has taken a “ ‘hard line’ in applying the
Pioneer
test.”
Midland,
With Pioneer’s four equitable factors in mind and the Second Circuit’s clarification of their application, the Court turns to the facts of this case to determine if Standard’s failure to file a timely proof of claim was caused by “excusable neglect.”
1. Danger of Prejudice to Debtors
The Court in
Keene
noted that while
Pioneer
did not define “prejudice,” subsequent cases have weighed a number of considerations in determining prejudice, including (1) the “size of the late claim in relation to the estate,” (2) whether a disclosure statement or plan [of reorganization] has been filed or confirmed with knowledge of the existence of the claim,” and (3) “the disruptive effect that the late filing would have on a plan close to completion or upon the economic model upon which the plan was formulated and negotiated.”
Keene,
Standard cites to
In re Sacred Heart Hosp.,
Although Standard’s Guaranty claim is not substantial in relation to the Debtors’ estate when it stands alone, the Court nevertheless finds that prejudice to the Debtors would be significant in the instant matter if Standard’s late-filed Guaranty claim is allowed. Standard’s Guaranty claim was filed before the Debtors filed their Supplemental Modified Fifth Amended Joint Plan, but after the Debtors filed their initial disclosure statement, which was approved by the Court on January 9, 2004, and the amended disclosure statement, which was filed on January 12, 2004. Thus, based on the considerations set forth in Keene, the cumulative effect of allowing Standard’s late-filed guaranty claim, when viewed at the time of the late-filed claim, may well have resulted in a flood of similar late-filed guaranty claims, which would have disrupted the economic model upon which the plan was formulated and negotiated. Specifically, the Court agrees with the Debtors that considering the Debtors might be parties to agreements with guarantees or guarantors of such agreements involving other Debtors, allowing late-filed proof of claims based on such guarantee or guarantor relationships would adversely affect the Debtors’ assessment of their liabilities as well as negatively impact their bankruptcy proceedings. The Court, therefore, finds that the prejudice factor weighs in favor of the Debtors.
Standard argues that its case differs from that in In re Enron Corp. (Midland) because that creditor failed to include even an unsigned copy of a guarantee to its proof of claim against ENA whereas Standard attached an executed copy of the Guaranty to Claim 13075. As discussed above, while the inclusion of the Guaranty may demonstrate that Enron was aware of the existence of the Guaranty, merely referencing the agreement entered into with ENA and labeling the Guaranty as Annex B-l in Claim 13075 does not evidence an intention to hold Enron liable for the debt, and thus, does not transform Claim 13075 into a timely-asserted guaranty claim.
Standard argues that while allowing the claim in In re Enron Corp. (Midland) presented an “unquantifiable risk of a flood of late-filed guarantee claims,” the instant matter does not present such a risk because “the number of creditors who timely asserted a guarantee claim by including a copy of the Guaranty in the proof of claim is limited.” However, the Court finds here, as it found in In re Enron Corp. (Midland), that a proof of claim, filed more than 15 months after the Bar Date, will present an “unquantifiable risk of a flood of late-filed guarantee claims.” 7
The Court, therefore, finds that the prejudice factor weighs in favor of the Debtors.
2. Length of Delay and its Potential Impact on Judicial Proceedings
The Court finds that the length of delay in filing the proof of claim here is substantial, that is, it was filed more than 15 months after the Bar Date, which is far greater than the circumstances of
In re Enron Corp. (Midland),
where the Court found that a delay in filing a proof of claim of more than six months after the bar date was substantial.
In re Enron Corp. (Midland),
The Court ... notes that the Bar Date Order was meant to function as a statute of limitations and effectively exclude such late claims in order to provide the Debtors and their creditors with finality to the claims process and permit the Debtors to make swift contributions under any confirmed plan of reorganization. To find otherwise, that is outside the context of excusable neglect, would vitiate the very purpose of the Bar Date Order and would clearly prejudice the Debtors’ reorganization process.
In re Enron Corp. (Midland),
3. Reason for Delay, Including Whether it Was Within Reasonable Control of Movant
While
Pioneer
recognized that courts are “permitted, where appropriate, to accept late filings caused by inadvertence,” a creditor nonetheless must explain the circumstances surrounding the delay in order to supply the Court with sufficient context to fully and adequately address the reason for delay factor and the ultimate determination of whether equities support the conclusion of excusable neglect.
Pioneer,
The Court finds that there is no indication in the record that Standard acted in a manner other than in good faith in seeking to file this proof of claim. Therefore, this factor favors Standard.
Although Standard acted in good faith, the remaining Pioneer factors, the danger of prejudice to the Debtors, the length of delay and its impact on the judicial proceedings, and the reason for the delay, all weigh strongly in favor of the Debtor in not permitting Standard leave to file a late proof of claim against Enron for the Guaranty. Therefore, the relief sought by Standard to file a late proof of claim under “excusable neglect” is denied.
IV. Conclusion
The Court concludes that Standard’s amendment to the Proof of Claim seeking to add Enron as a debtor and include the Guaranty claim fails under both prongs of the two-prong test for determining whether to permit amendment because there has been no mistake in identity and the balancing of the equities favors the Debtors, not Standard. Further, the attachment of the executed Guaranty to the Proof of Claim in ENA’s ease did not constitute an informal proof of claim or sufficiently provide notice to Enron that Standard intended to hold it liable for the Guaranty claim.
The Court also concludes that while Standard acted in good faith, the remaining Pioneer factors, including danger of prejudice to the Debtors, the length of delay and its impact on the judicial proceedings, and the reason for the delay, all weigh in favor of the Debtors in not permitting Standard leave to file a late proof of claim against Enron for the Guaranty. Therefore, the motion by Standard is denied in all respects.
The Debtors are to settle an order consistent with this opinion.
Notes
. Standard filed Claim 24625 against ENA on February 9, 2004, as well, also labeling that claim as an amended claim to Claim 13075. No objection was filed regarding Claim 24625 and, therefore, Claim 24525 is not addressed in this opinion.
. For the sake of clarification, the Court will refer to its decision in
In re Enron Corp.,
. Bankruptcy Rule 7015 provides that Rule 15 applies in adversary proceedings and Bankruptcy Rule 9014 permits a [bankruptcy] court to extend Rule 7015 to contested matters as well as adversary proceedings.
In re Stavriotis,
. In a recent string of cases regarding motions for leave to amend a complaint, the Court has discussed that where the moving party knew or should have known of the identity or involvement of the party sought to be added, the requisite criteria of a mistake in identity for a Rule 15(c)(3) mistake was not established, regardless of whether the failure to name such party was not a strategic decision.
See
Opinion Granting Plaintiff’s Motion for Leave to Amend its Complaint against Shizuoka Bank, Ltd., Shizugin TM Securities, Co. Ltd., and Merrill Lynch Tan-Chuki-Sai Fund (Adv. No. 03-92677, Docket No. 1419, Jan. 3, 2007); Opinion Denying Plaintiff's Motion for Leave to Supplement Its Pending
. The Court notes that despite its error in that case, the request to amend the proof of claim, nevertheless, still would have been denied because of the Court's conclusion that the mov-ant also failed to satisfy the second prong of the test. Moreover, in considering the appeal of the Midland decision, the District Court and the Second Circuit Court of Appeals did not address the Court's finding concerning the first prong of the test. (Apparently, the issue of the Court's finding regarding the first prong was not raised on appeal.) Rather, the appellate courts sustained the Court’s denial of the right to amend based upon their conclusion that the second prong had not been established. Further, the Court notes that it reached a similar conclusion in an unpublished opinion, Opinion Denying Enterprise Products Operating L.P.’s Motion for Leave to Amend Proof of Claim, and Leave to File Late Proof of Claim (Case No. 01-16034, Docket No. 30807, February 23, 2007). Nonetheless, in that case, the Court's ultimate conclusion to deny the right to amend was also proper because the second prong had not been established.
. The Court notes that even if both situations were factually similar, other considerations, including the then status of the case, may not have required a finding of inequitable conduct by the Debtors for refusing to resolve the dispute consistent with the Kinder Morgan settlement.
. Even if the Court were to assess the risk of a flood of late-filed guarantee claims at the time the Debtors objected to Claim 24626, al-, though that risk may be somewhat lesser than at the time Claim 24626 was filed, a substantial risk would still exist. Furthermore, although the claim adjudication process is now much further along and the likelihood of